If you are a registered user please log in to see more postings.

The AAO Weblog covers accounting issues and current events as they relate the practice of investment analysis.

Jul 21

Written by: Jack Ciesielski
7/21/2005 5:26 AM 

It looks like Deloitte-the-global-firm isn't the only one of the Big 4 having trouble with wayward local affiliates. (Think Parmalat.)

This episode never turned up on my radar screen. KPMG International had a scrape with its Norwegian affiliate a few years ago. The affiliate had been responsible for auditing an outfit known as Finance Credit, which dealt in collecting distressed debt. Apparently, its principals hid the firm's own distress from the KPMG affiliate; in 2003, the firm eventually turned into "one of Norway's worst bankruptcies." It owed about $200 million. (Maybe that's why it didn't get a lot of attention here. Our then-current worst bankruptcies were a bit more dramatic.)

An Oslo district court has found that the Norwegian branch of KPMG is liable for the non-discovery of the fraud and ordered them to pay about $100 million.

Both episodes serve to illustrate an inherent contradiction in these global auditing business: they need to be global, but try to contain their own liability at the local level. From the sound of the article, KPMG was more successful than Deloitte has been in walling off its liability.