Praise for The Big Four “Major international accounting firms play a fundamental role in the governance of the world’s largest public companies The quality of financial statements is crucial for evaluating executives and valuing firms The Big Four delves into the origin of these firms and the role they play in businesses around the globe As for many organizations, the future for accounting firms is uncertain How will this profession adapt to its new environment? The Big Four tells the reader what to expect This is a must-read for executives and directors alike.” —David Larcker, James Irvin Miller Professor of Accounting, Stanford Graduate School of Business; Professor of Law (by courtesy), Stanford Law School; and Senior Faculty, Rock Center for Corporate Governance, Stanford University “Who would have ever thought that one would find a deep understanding of the issues facing today’s Big Four in the rise and fall of the Medici bank? Gow and Kells provide a riveting analysis of the historical antecedents to today’s Big Four structures and strategies and leave us totally unsettled in considering the industry’s future A unique approach of historical comparisons results in a must-read volumefor of an essential industry that is poorly understood I could not put it down.” Praise The Big Four —Leonard A Schlesinger, Baker Foundation Professor, Harvard Business School, “Major accounting firms play a fundamental role in the governance and international President Emeritus, Babson College of the world’s largest public companies The quality of financial statements is “A fascinating book a .provocative I highly recommend it.” The Bigfor Four offers lens consider the The evolution and delves role of the crucial evaluating executives and to valuing firms Big Four intolargthe est global accounting firms Perhaps biggest contribution is tothe help the reader —Ticky Skyand News origin of Fullerton, these firms theBusiness role theyits play in businesses around globe As for think about fundamental what should fromHow an audit many organizations, the questions future for like accounting firmswe is expect uncertain will and this “Great fun.anIadapt enjoyed it.” new how can audit to partner manage her “multiplicity roles,” includes manprofession its environment? The BigofFour tellswhich the reader what to —Phillip Adams, Late Night Live, Australian Broadcasting Corporation aging financial promotion around “business development,” and still expect This is and a must-read forincentives executives and directors alike.” maintain credibleJames in­de­pen­ dence andProfessor professional skepticism.Stanford It also brings forward —David Larcker, Irvin Miller of Accounting, Graduate ­there of seems to be an “audit expectations gap,” ­w hether a blunt of why Schooldiscussion of Business; Professor Law (by courtesy), Stanford Law School; and it is reasonable assume that can be expected to detect fraud, and ofSenior Faculty,toRock Center forauditors Corporate Governance, Stanford University fers some predictions about the potential implications of technology on professional practice Some might the narrative one-­sided, focusing too strongly “Who would have everview thought that oneaswould find aperhaps deep understanding of the lems within infrastructure, without its strengths on prob­ issues facing today’sthe Big Four in the rise and sufficiently fall of the discussing Medici bank? Gow and Most provide would likely agree,analysis however,ofthat book can catalyze atoneeded Kells a riveting the this historical antecedents today’sdiscussion Big Four about whatand thestrategies accountingand profession should what it appears to currently structures leave us totally deliver, unsettled in considering the indusdeliver, and how it should innovate forward try’s future A unique approach of moving historical comparisons results in a must-read volume of Jagolinzer, an essential industryofthat is poorly understood I could not put it down.” —Alan D Professor Financial Accounting and Director, Centre —Leonard A Schlesinger, Foundation Professor, Reporting & Baker Accountability, for ­Financial Judge BusinessHarvard School,Business UniversitySchool, of and President Emeritus, Babson College ­Cambridge “A fascinating book I highly recommend it.” —Ticky Fullerton, Sky News Business “Great fun I enjoyed it.” —Phillip Adams, Late Night Live, Australian Broadcasting Corporation 315-75337_ch01_3P.indd 6/4/18 8:12 PM This page intentionally left blank 315-75337_ch01_3P.indd 6/4/18 8:12 PM 315-75337_ch01_3P.indd 6/4/18 8:12 PM The Big Four Copyright © 2018 by Ian D Gow and Stuart Kells All rights reserved No part of this publication may be reproduced, distributed, or transmitted in any form or by any means, including photocopying, recording, or other electronic or mechanical methods, without the prior written permission of the publisher, except in the case of brief quotations embodied in critical reviews and certain other noncommercial uses permitted by copyright law For permission requests, write to the publisher, addressed “Attention: Permissions Coordinator,” at the address below Berrett-Koehler Publishers, Inc 1333 Broadway, Suite 1000 Oakland, CA 94612-1921 Tel: (510) 817-2277, Fax: (510) 817-2278 www.bkconnection.com Ordering information for print editions Quantity sales Special discounts are available on quantity purchases by corporations, associations, and others For details, contact the “Special Sales Department” at the Berrett-Koehler address above Individual sales Berrett-Koehler publications are available through most bookstores They can also be ordered directly from Berrett-Koehler: Tel: (800) 929-2929; Fax: (802) 8647626; www.bkconnection.com Orders for college textbook/course adoption use Please contact Berrett-Koehler: Tel: (800) 929-2929; Fax: (802) 864-7626 Distributed to the U.S trade and internationally by Penguin Random House Publisher Services Berrett-Koehler and the BK logo are registered trademarks of Berrett-Koehler Publishers, Inc First Edition Hardcover print edition ISBN 978-1-5230-9801-9 PDF e-book ISBN 978-1-5230-9802-6 IDPF e-book ISBN 978-1-5230-9803-3 2018-1 Cover design by Kim Ferguson Text design and typesetting by Tristan Main Cover image © enjoynz / Getty Images Contents Prelude Science, Magic and the Prehistory of the Big Four vii Introduction 1 Part I Infancy  Glory, Not Infamy The Medici Bank as a precursor to the Big Four  Transported How the Big Four began in the dangerous world of nineteenth-­century accountancy  A Curious Match The remarkable founders of the Big Four  Part II Maturity  Mere Automata Staking out the Big Four’s turf  An Injudicious Change Adventures and misadventures in Big Four branding Porn Star The culture of the Big Four  The Most Average Guys in the Room Big Four professional values  315-75337_ch01_3P.indd 15 17 28 38 51 53 72 82 96 6/4/18 8:12 PM Part III The Difficulties of Adulthood 111 Unqualified Auditing as the foundation of the Big Four brands 10 Clean The impairment of Big Four auditing  11 Get Ready to Dance Conflicting interests in Big Four taxation services 12 One Four Ten The Big Four in China  Part IV the Twilight Years 113 128 150 162 175 13 Disrupted The obsolescence of Big Four technology  177 14 Conclusion190 Epilogue Acknowledgements Endnotes Bibliography  Index  About the Authors 315-75337_ch01_3P.indd 213 215 217 230 252 260 6/4/18 8:12 PM Prelude Science, Magic and the Prehistory of the Big Four Founded in the nineteenth century as the world’s first national accounting body, the Institute of Chartered Accountants in England and Wales quickly established a dining club, sports clubs and a library Among the library’s first acquisitions was a copy of Luca Pacioli’s ground-­breaking Renaissance book of practical mathematics, Summa de Arithmetica (1494) Summa de Arithmetica explains how to manage ledgers, inventories, liabilities and expense accounts As well as pioneering the use of Hindu– Arabic numerals in Europe, it helped popularise double-­entry accounting ‘For every credit in a ledger,’ Pacioli wrote, ‘there must also be a debit.’ The enlightened author encouraged entrepreneurs to stop consulting astro­ logers and recluses for advice about this or that venture; all a merchant needed to succeed, Pacioli counselled, was access to cash, a good bookkeeper and an up-­to-­date system of accounts Pacioli belonged to a noble tradition of scholarship Bookkeeping – along with cartography, perspective and ballistics – was one of the first sciences of the scientific revolution The German polymath Johann Wolfgang von Goethe considered double-­entry bookkeeping ‘amongst the finest inventions of the human mind’ 315-75337_ch01_3P.indd 6/4/18 8:12 PM prelude Curiously, the careful counting of money preceded the careful measurement of lunar movements and accelerating cannonballs The physical sciences, such as astronomy and physics, drew heavily on fiscal precedents: several pioneer physicists and cosmographers had also learned economics and accounting Copernicus, for example, wrote on monetary reform as well as on the planets Galileo taught bookkeeping, and learnt much from the field.1 In 1696 Sir Isaac Newton was appointed Warden of England’s Royal Mint.2 In the early days of science, numbers were put to all manner of purposes, practical and impractical The first Latin and Italian books on arithmetic also instructed their readers on conjuring, astrology, thaumaturgy, games, jests, curses and black magic As we look back with modern eyes, the line between early mathematics and magic appears strikingly fine; indeed, the relationship between math and the occult has a long history Early in the fifth century, St Augustine issued a warning: ‘The good Christian should beware of mathematicians and all those who make empty prophecies The danger already exists that mathematicians have made a covenant with the devil to darken the spirit and confine man in the bonds of Hell.’ When, in the thirteenth century, Roger Bacon advocated the adoption of the Hindu–Arabic numerals, the church accused him of practising magic and condemned him to life in prison Long after those strange-­looking numerals arrived in Europe, they were still seen as exotic, even disreputable The numerals, though, were a boon for Western culture Much more practical and versatile than the Roman ones, the Asian numerals opened the way for modern mathematics, and hence modern accounting 1 He also taught the new mathematics of fortification, such as how to build ‘star forts’ to withstand artillery 2 The mathematician Carl Friedrich Gauss is said to have pointed out an error in his father’s financial calculations – at the age of three viii 315-75337_ch01_3P.indd 6/4/18 8:12 PM prelude Double-­entry bookkeeping rests on a tautology: the value of an organisation’s assets must equal the claims of creditors and owners to those assets This was a new idea Earlier financial records reflected a very different philosophy The Domesday Book of 1086, for example, is a set of simple lists that assert King William’s property rights, ecclesiastical rights, legal privileges, taxes and commitments It is not a balanced schedule of debits and credits Absolute rulers were more interested in counting their gold than in tallying their debts – that is, in reckoning what they owned rather than what they owed The rise of double-­entry among bankers and merchants in the late medieval period reflected the tectonic social, political and economic changes of the age, and the shift of power to the men and women who energised the Renaissance The Pacioli volume became one of the most valued possessions of the Institute of Chartered Accountants, both for its ground-­breaking content and for its worth on the rare book market An ‘incunabulum’ (meaning it was printed before 1501), the book is today appreciated as one of the earliest printed volumes about numbers Another copy, finely bound in vellum and recently found in an old cupboard, sold at a Milan book auction for 530,000 euros These volumes are rare survivors: most other copies from the 1494 edition were read to pieces by teachers, students, bookkeepers and merchants The institute’s other treasures include Nieuwe Instructie (Antwerp, 1543), a work whose translation into French and English helped spread double-­entry accounting to Western Europe (the author was Jan Ympyn Christoffels, a travelling silk trader), and the only surviving complete copy of The maner and fourme how to kepe a perfecte reconying (London, 1553), written by James Peele and adorned with elegant sample ledgers The institute’s collection would be described in 1966 as the world’s most complete library devoted to accounting and allied subjects It is a monument to a powerful principle: that sound bookkeeping is the foundation of success in statecraft and in commerce The modern ix 315-75337_ch01_3P.indd 6/4/18 8:12 PM Bibliogr aphy Sikka, Prem, Steven Filling & Pik Liew The Audit Crunch: Reforming auditing, Working Paper No. WP 09/01, Essex Business School, January 2009 ‘Singing River Health System Sues KPMG: “Colossal” Error’: The Washington Times, 18 January 2015 Simonetta, Marcello ‘The Medici Meltdown’, Forbes, 30 October 2008 Sitton, Robert Lady in the Dark: Iris Barry and the Art of Film (Columbia University Press, 2014) Skidelsky, Robert ‘Is Economics Education Failing?’, World Economic Forum (www weforum.org/agenda/2017/01/is-economics-education-failing) Skinner, Chris ‘What Did the Medici Bankers Ever Do For Us?’, Chris Skinner’s Blog (online), (https://thefinanser.com/2014/04/what-did-the-medici-bankers-ever-do-for-us html) Skinner, Douglas J & Suraj Srinivasan ‘Audit Quality and Auditor Reputation: Evidence from Japan’, The Accounting Review, Vol. 87, No. 5, September 2012 Smith, Kalen ‘China Orders Big Auditors to Hire More Chinese Citizens’, Big Firms Network (www.big4.com/news/ china-orders-big-4-auditors-to-hire-more-chinese-citizens) Soll, Jacob The Reckoning: Financial accountability and the making and breaking of nations (Penguin, 2014) Soll, J ‘First They Killed All The Accountants: How big banks, corporations and government made themselves unauditable’, Salon (online), May 2014 Srinivasan, R ‘The Management Consulting Industry: Growth of consulting services in India: Panel discussion’, IIMB Management Review, Vol. 26, Issue 4, December 2014, pp. 257–70 Stacey, Nicholas A.H ‘The Accountant in Literature’, The Accounting Review, Vol. 33, No. 1 (Jan 1958), pp. 102–5 Stempel, Jonathan ‘Clock Did Not Run Out on FDIC Lawsuit Vs Big Banks: U.S Court’, Reuters, 19 May 2016 Stempel, J ‘PwC Must Face $1 Billion MF Global Malpractice Lawsuit: U.S judge’, Reuters, August 2016 Stevens, Mark The Accounting Wars (Macmillan, 1986) Stevens, Mark The Big Eight: An incisive look behind the pinstripe curtain of the eight accounting firms whose practices affect the pocketbooks of every American (Macmillan, 1981) Stevens, Mark The Big Six: The selling out of America’s top accounting firms (Simon & Schuster, 1991) Stevens, Mark The Big Eight (Simon & Schuster, 2010) Stiglitz, Joseph The Roaring Nineties: Seeds of destruction (Penguin, 2003) Strathern, Paul The Medici: Godfathers of the Renaissance (Random House, 2007) 248 315-75337_ch01_3P.indd 248 6/4/18 8:12 PM Bibliogr aphy Strengthening the Professionalism of the Independent Auditor: Report to the Public Oversight Board of the SEC Practice Section, AICPA from the Advisory Panel on Auditor Independence (Public Oversight Board, 1994) Stringer, Andrew ‘Future directions in auditing’, Chartered Accountants Australia and New Zealand (www.charteredaccountants.com.au/News-Media/Charter/Charter-articles/ Audit-and-assurance/2012-05-Future-Directions-in-Auditing) Subcommittee on Reports, Accounting and Management of the Committee on Government Operations, United States Senate The Accounting Establishment: A staff study (U.S Government Printing Office, 1976) Sutton, Michael H ‘Auditor Independence: The challenge of fact and appearance’, Speech delivered at the American Accounting Association 1996 Annual Meeting, Securities and Exchange Commission, 14 August 1996 Sweet, Pat ‘US Regulator Attacks KPMG Response to Audit Quality Criticism’, CCH Daily (online), 27 October 2014 Syal, Rajeev, Simon Bowers & Patrick Wintour ‘Big Four Accountants “Use Knowledge of Treasury to Help Rich Avoid Tax”’, The Guardian, 26 April 2013 Task Central ‘Task Central’ (https://au.linkedin.com/company/task-central) Thomson, H Byerley The Choice of a Profession A concise account and comparative review of the English professions (1857) Thornton, Patricia H., Candace Jones & Kenneth Kury ‘Institutional Logics And Institutional Change In Organizations: Transformation in accounting, architecture, and publishing’, Transformation in Cultural Industries, Research in the Sociology of Organizations, Vol. 23, 2005, pp. 125–70 ‘Those Medici’, The Economist, 23 December 1999 Toffler, Barbara Ley Final Accounting: Ambition, greed, and the fall of Arthur Andersen (Broadway Books 2003) Tomasic, Roman ‘Auditors and the Reporting of Illegality and Financial Fraud’, in Peter N Grabosky (ed.), Complex Commercial Fraud: Proceedings of a conference held 20–23 August 1991 (Australian Institute of Criminology, 1992; AIC Conference Proceedings No. 10), pp. 43–63 Touche Ross & Co Employers’ Accounting for Pensions (Touche Ross & Co., 1983) Treanor, Jill ‘Whistleblower at HBoS Attacks “Ludicrously Bad” City Regulation’, The Guardian, 15 November 2015 Treanor, Jill & Simon Bowers ‘I Was Sacked for Exposing Risks, Says Bank Whistleblower’, The Guardian, 11 February 2009 Trotter, David ‘A Most Modern Misanthrope: Wyndham Lewis and the pursuit of anti-pathos’, The Guardian, 23 January 2001 ‘Typical Fraudster Is an Experienced, Tenured Manager Or Executive With No Criminal History: KPMG Report’, PR Newswire (online), 18 December 2013 Unger, Miles J Magnifico: The brilliant life and violent times of Lorenzo de’ Medici 249 315-75337_ch01_3P.indd 249 6/4/18 8:12 PM Bibliogr aphy (Simon & Schuster, 2008) United Nations Conference on Trade and Development Corporate Governance in the Wake of the Financial Crisis: Selected international views (United Nations, 2010) United States General Accounting Office Report to the Senate Committee on Banking, Housing, and Urban Affairs and the House Committee on Financial Services (September 2003): Accounting Firm Consolidation Selected large public company views on audit fees, quality, independence, and choice (United States General Accounting Office, 2003) UNSW Business School ‘Accounting Practices: Did fair value cause the crisis’, Business Think (online) March 2011 Vatican Radio ‘Press Office: Statement on Vatican–PwC relationship’, 10 June 2016 Vaughan, Adrian Railwaymen, Politics and Money (John Murray, 1997) ‘Victoria’s Secret case tests US manufacturing tax break’, Reuters, April 2013 Villmer, Matthew ‘PwC Fails in Bid to Toss FDIC’s $1b Negligence Suit’, Law360, 10 September 2013 Warner, Jeremy ‘Dereliction of the Big Four Blamed for Financial Crisis’, The Telegraph, 31 March 2011 Waterhouse, Edwin The Memoirs of Edwin Waterhouse: A founder of Price Waterhouse, edited by Edgar Jones (Batsford, 1988) Watts, Ross L & Jerold L Zimmerman ‘Agency Problems, Auditing and the Theory of The Firm: Some evidence’, Journal of Law and Economics, Vol. 26, No. 3, October 1983, pp. 613–33 Way, D & R Nield Counting House: The history of PricewaterhouseCoopers on the China Coast (PricewaterhouseCoopers, 2002) Weatherford, Jack The History of Money (Crown, 2009) Webb, Jonathan ‘PwC Sued for Missing $2.9 Billion Scam: Do auditors have a public responsibility to prevent fraud?’, Forbes, 25 August 2016 Webb, Nick & Roisin Burke ‘Were the Bank Auditors Conflicted?’, Sunday Independent, 25 April 2010 Weiss, Barbara The Hell of the English: Bankruptcy and the Victorian novel (Bucknell University Press, 1986) Weller, Patrick Kevin Rudd: Twice Prime Minister (Melbourne University Publishing, 2014) West, Michael ‘Oligarchs of the Treasure Islands’, MW (online), 11 July 2016 West, Michael ‘“Tax Avoidance” Masters Revealed: Exclusive’, The New Daily, 11 July 2016 White, Anna ‘Deloitte Reveals Record Revenues as It Benefits from Financial Crisis’, The Telegraph, 22 September 2011 White, A ‘PwC Fined Record £1.4m Over JP Morgan Audit’, The Telegraph, 5 January 2012 Whittle, Andrea, Frank Mueller & Chris Carter ‘The “Big Four” in the Spotlight: Accountability and professional legitimacy in the UK audit market’, Journal of Professions and Organization, Vol. 3, No. 2, 2016, pp. 119–141 250 315-75337_ch01_3P.indd 250 6/4/18 8:12 PM Bibliogr aphy ‘Why I Wouldn’t Be Gagged: The whistleblower who triggered the fall of a leading financial regulator reveals his full story’, The Daily Mail, 14 February 2009 Wiggins, Rosalind Z., Thomas Piontek & Andrew Metrick ‘The Lehman Brothers Bankruptcy: An Overview’, Yale Program on Financial Stability Case Study 2014-3a-v1, October 2014 (http://som.yale.edu/ypfs) Wolmar, Christian Fire & Steam (Atlantic Books, 2007) WoodShedd: Web Hosting Master, in Thread: Price Waterhouse – Donkeys, 12 August 2002 (www.webhostingtalk.com/showthread.php?t=66696) Wootton, Charles W & Wande G Spruill ‘The Role of Women in Major Public Accounting Firms in the United States During World War II’, Business and Economic History, Vol. 23, No. 1, Fall 1994, pp. 241–52 Zanki, Tom ‘SEC Suspends KPMG Auditors after TierOne Bank’s Failure’, Law 360, 30 June 2014 Zayed, Yago ‘Agriculture: Historical statistics’, Briefing Paper No. 03339, 21 January 2016 Zeff, Stephen A ‘How the U.S Accounting Profession Got Where It Is Today: Part I’, Accounting Horizons, Vol. 17, No. 3, September 2003, pp. 189–205 Zeff, Stephen A ‘How the U.S Accounting Profession Got Where It Is Today: Part II’, Accounting Horizons, Vol. 17, No. 4, December 2003, pp. 267–286 Zeff, Stephen A Forging Accounting Principles in Five Countries: A history and an analysis of trends (Routledge, 2016) Zeff, Stephen A Insights from Accounting History: Selected writings of Stephen Zeff (Routledge, 2010) 251 315-75337_ch01_3P.indd 251 6/4/18 8:12 PM Index American Institute of Accountants 77 American Institute of Certified Public Accountants (AICPA) 99, 121 American International Group 122, 136 American Jobs Creation Act (2004) 154 Andersen Consulting 64, n119 Andersen Tax 143 Andrew, Michael (KPMG global chair) 141 Anonymous 158 Arthur Andersen 3–4, 7–8, 62–4, 73, 84, 88, 92, 105, 119–120, 130, 137, 143, 196 –7, 207 Arthur Young Arthur Young McClelland Moore & Co 84 Ashley Munro and Mainstreet Corporate 80 Association of Chartered Certified Accountants 5, 132–3, 142 Audit Standards Board of AICPA 120 Auditing Practices Board 57, 142 Australian Securities and Investments Commission (ASIC) 83 Australian Workplace Equality Index (2016) 90 8th Audit Directive of the European Commission 186 1179 Third Lateran Council 22 1845 Companies Clauses Act 117 1868 Regulation of Railways Act 37, 56 1911 Railway Companies (Accounts and Returns) Act 37 1933 Securities Act (US) 55, 58, 117, 202 1934 Securities Exchange Act 55, 117, 121 2010 European Commission Green Paper Audit Policy: Lessons from the Crisis 197 2014 Australian Standard on Assurance Engagements Other than Audits or Reviews of Historical Financial Information (ASEA 3000) 59–60 2015 Australian Accounting Awards 178 Acciaiuoli (Medici Bank rival) 26, 192 Acciaiuoli, Agnolo 191 Accodex 178 Accountant, The 40 Accounting Principles Board (US) 57 Akai Holdings 164–7, 196, 207 Allen, Paul (TBW former CEO) Already 174 252 315-75337_ch01_3P.indd 252 6/4/18 8:12 PM Index Caesar W J 54 Cambridge Economic History of Modern Britain 54 Canada Revenue Agency 156 Capgemini 65, 80, 200 Carnes, Jon (short seller) 136 Carter, Arthur H 43–4, 203 Center for Audit Quality (AICPA affiliate) 138, 213 Certified Practising Accountants (CPAs) 4, 55, 61, 67, 88, 100, 102, 106, 117, 119, 142, 152, 170 Chandor J C., Margin Call 124 Chartered Accountants’ Dining Club 88 Chartered Accountants’ Lodge 38 Chaucer 31 China Integrated Energy 136 China Securities Regulation Commission 163, 172 Chinese Institute of Certified Public Accountants (CICPA) 170, 172–4 Chinese Ministry of Finance 170 Christoffels, Jan Ympyn, Nieuwe Instructie ix–x Choice of a Profession, The (1857) 32 Clark, Andrew 76 Colonial Bank 5–7, 83, 135, 137–8, 142, 207 Connor, Rick (KPMG) 76, 79 Cook, Michael J (Deloitte) 100 Cooper, David J 185 Cooper, Ernest 94 Cooper, William 28, 84 Cooper & Robson Cooper Brothers 28, 74, 96, 108 Coopers & Lybrand 3–4, 73–4, 84, 119, 171–2, 197 Copernicus viii Cossa, Baldassarre 19, n19, 23 Cougle, Stephen (PwC) 83 Council of the Institute of Accountants 84 Council of Vienne (1311–12) 22 ‘country-by-country reporting’ (CbCR) 160 Crawford, Matthew 95, 207 Bank Medici of Austria 213 Bank of Ireland 133 Bankia (Spain 2011) 126 Bardi (Medici Bank rival) 26, 192 Baroness Noakes 89 Barrett, Michael 185 BBC Panorama 159 Bear Stearns 122–3, 148 BearingPoint 65, 80, 200 Bentivoglio, Giovanni II 191 Berardino, Joe (Arthur Andersen CEO) Big Eight 3–4, 64, 84, 169, 197 Big Five 4, 7, 143 Big Six 3, 64, 79, 97, 105, 119, 197 Big Three Bill & Melinda Gates Foundation 135 Birmingham Chartered Accountants Students’ Society 131 Bloom, Paul 101 Bookkeeper, The (1896) 36 Booz & Co 80–1, 158 Booz Allen Hamilton see Booz & Co Borrelli Walsh 165 Bowman, Arthur W., Bowman’s Accounting Report n30 Bradley, Barnard & Co 29, 40 Breese, Charlotte (biographer) 47 Brigham Young University 204 Brindle, Ian 105 Broughman, Henry (Lord Chancellor 1830–34) 31 Brown, Desiree (TBW former treasurer) Brucker, Gene (scholar) 18 Buffett, Warren 127 Burrage, M 9–10 Burroughs, Edward, and 1659 Quaker text 42 Business Week (from 1969), ‘Accountants Turn Tougher’ 99 Byerley Thomson, H., Choice of a Profession, The (1857) 32 253 315-75337_ch01_3P.indd 253 6/4/18 8:12 PM Index di Cino Rinuccini, Filippo 24 di Lorenzo, Piero (Piero the Fatuous) 195, 211 Dickens, Charles 11, 29, 34 Dickinson, Arthur Lowes 62 Difference, The 80 Domesday Book (1086) ix, 116, 150 Donatello 23, 191 Drucker, Peter 68, 188 Dugan, Ianthe 77, 102–3 Dutch Algemene Rekenkamer (1386) 116 Dutch East India Company 68, 151 and rekeningopnemers 116 Crisis in Accounting Ethics 77–8 Crowe, Horwath 6, n174 da Ricasoli, Rinieri 26, 82, 192 Dang, Edmund 166 Dante’s Divine Comedy (1308–21) 22 Darwin, Charles 11, 68 De Armas, Delton (TBW former CFO) de Medici, Carlo 25 de Medici, Cosimo 17–21, 23, 25, 46, 48, 82, 190–1 de Medici, Giovanni 17, 19–20, 23, 42, 98, 103 de Medici, Lorenzo (‘Il Magnifico’) 191–5, 211 de Medici, Pierfrancesco 191 de Medici, Piero (‘Piero il Gottoso’) 17–18, 25, 46, n190,190–2 de Niccoli, Niccolò 19, 23 de Roover, Raymond, The Rise and Decline of the Medici Bank: 1397–1494 20 de Rossi, Lionetto 194 Dean, Rayna 89 del Verrocchio, Andrea 191 Deloitte 1, 3, 54, 61, 65–6, 75–6, 80, 121, 161, 170, 174, 196 and ActionAid 156 and the Australian tobacco industry 78–9 and ChinaCast 126–7, 135 and Fannie Mae 122 and ‘Inspiring Women’ 91 and Longtop Financial Technologies 162–3, 171 Deloitte, William 28, 36–7, 65, 75, 84, 136–7 Deloitte & Greenwood 28 Deloitte & Touche Deloitte Australia 85, 106 and ‘GLOBE’ 90–1 Deloitte Haskins & Sells 3, 84 Deloitte Touche Tohmatsu 48, 75 Deltour, Antoine (PwC) 159–60 Dennis Nally (PwC chairman) 139 Economic Times 65 Economist, The 4, 121–2, 132 Edmondson, Thomas (Quaker) 43 Edwards, William 40 ‘Elite Three’, the 65, 180 Enron 4, 80, 119–20, 122, 144 Ernst, Alwin Charles 77–8 Ernst & Ernst 77 Ernst & Whinney 3, 84 Ernst & Young 3–4 Ernst & Young (EY) 1, 61, 75, 80, 102, 126, 141, 163–4, 174, 196, 204 and the Anglo Irish Bank 135, 137 and HealthSouth Corp 135 and the savings and loan crisis and Sons of Gwalia 129 Ernst & Young (EY) Australia 90 Ernst & Young Hua Ming (EYHM) 164 Evening Standard, ‘A Cutting Sense of History at PwC’ 73 extinction-level event (ELE) 5, 7, 192, 196, 206, 211 EY! Magateen (magazine) 75 Farkas, Lee 5–6 Federal Deposit Insurance Corporation (FDIC) Ferguson, Niall 192, 207 The Ascent of Money 18 Ferrier Hodgson 129, 166 254 315-75337_ch01_3P.indd 254 6/4/18 8:12 PM Index Halet, Raphael (PwC employee) 159–60 Halifax Bank of Scotland (HBOS) 122–3 Hanson, Walter E (Marwick, Mitchell & Co.) 55 Hardy, Sir Robert (Ernst & Young EY) 31 Harris Smith, Mary 89 Haskins & Sells 168, 203 Hayden Michael (CIA former director) 158 Hayward, Jonathon 141 Hazlitt, William 29 Hell in an Uproar (1718) 31 Herz, Bob (FASB former chair) 124 Hewlett-Packard 99, 126 Holyland, William 41, 74 Hopkins, Ann B 89 House of Commons Committee of Public Accountants 152–3 House of Commons Treasury Committee 142 House of Lords Economic Affairs Committee 198 House of Lords Select Committee on Economic Affairs 125, 141, 198 How, Louise see Waterhouse, Lady Louise Howcroft, Russel (PwC) 105 Howitt, Sir Harold 77, 157 Fibonacci, Leonardo 11 Field Fisher Waterhouse 61 Financial Accounting Standards Board (FASB) 78, 124 Financial Times 4, 137 First Western Securities (San Francisco) 155 FitzPatrick, Seán 135 Foreign Enterprise Human Resources Services Company 169 Fornelli, Cindy (auditor) in Time magazine 213 Fortune Global 500 Fortune magazine Four Seasons Nursing Centers (1970) 140 France (TV station) 159 French Cour des Comptes (1318) 116 Friehling & Horowitz 213 Fuld, Richard (Lehman CEO) 124 Galbraith J.K (economist) 68, 71 Galileo viii Garnsey, Sir Gilbert (Price Waterhouse partner) 56, 75, 212 GEM Consulting 80 Generally Accepted Accounting Principles (GAAP) 56, 121, 125, 132 Gillis, Paul 2, 167–8, 170–1, 173–4, 177 Glater, Jonathon D., in New York Times 30 Goerdeler, Reinhard (KPMG) 84 Goethe, Johann Wolfgang von vii, 30 Goldbloom, Anthony 181 Goldman Sachs 91, 122, 129 Gonzales, Attorney-General Alberto 156 Google 152, 181 Government National Mortgage Association (Ginnie Mae) Grady, Paul (Price Waterhouse) 63 Great Western Railway 36–7, 72 Greenblatt, Stephen, Swerve n23 Griggs, Stephen (managing partner Deloitte) 201 Guardian, The 76, 161 Independent, The 44, 57 Independent Audit Ltd 141 Institute of Chartered Accountants of England and Wales (ICAEW) vii, ix, 31, 38, 66, 77, 84, 88–9, 157 International Consortium of Investigative Journalists 159–60 International Financial Reporting Standards 170 Isle of Wight Railway Co 34 Jackson, Jennifer 125 Jackson, Peter, in BBC News Magazine 42 Jain, Bharat K (auditor) 125 Jamal, Karim 185 Joint Stock Companies Act of 1844 116–17 255 315-75337_ch01_3P.indd 255 6/4/18 8:12 PM Index LuxLeaks 7, 136, 158–60 Jones, Edgar 56, 105, 109, 128, 184–5 Jones, Lewis D 54 Journal of Accountancy 79, 89 JP Morgan Securities 126 Macchiavelli, Niccolò, History of Florence 191 Macve, Professor Richard 167 Madoff, Bernie 6, 117, 126, 213 Mahanta, Vinod 65 Maister, Professor David 98–9, 181, 211 Manousos, George (PwC) 154 Marwick, James 39 Marwick, Mitchell & Co 28, 55 Maugham, Somerset, Of Human Bondage 96 May, George O (Price Waterhouse) 56, 58 McDonnell, John (PwC) 133 McKenna, Francine 131 McKinsey ‘8–4–2’ 102 McLynn, Frank 44 Medici Bank 12, 15, 17–9, 24–7, 56, 72, 82, 87, 116, 150–1, 175, 192–4 and Council of Constance (1414) 22 Meek, James, in London Review of Books 34 Merrill Lynch 103 Messrs Peat, Waterhouse & Co 38–9 Metcalf Report (1976) 4, 140 Mirrielees, Sir Frederick (merchant banker) 44 Monday 65, 81, 200 Moore, James Moore, Paul Russell 122 Morgan, J Pierpont 55 Morgan Stanley 103 Moritz, Bob (chair PwC US) 133 Morland, H.J (Price Waterhouse partner) 118 Moulin Global Eyecare 166–7 Muddy Waters (research firm) 136 Kaggle 181 Kai, Xi Yong, Interlocking Bookkeeping 168 Keers, Paul, A Gentleman’s Wardrobe 94 Kelly, Wes (PwC) 138 Klynveld Main Goerdeler (KMG) 3, 75 KPMG 1, 3, 7, 61, 75, 76, 79–80, 120–1, 126, 132, 139, 141, 154–7, 169, 174 and China Integrated Energy (CIE) 136 and Citigroup 122 and Siemens 135 and Singing River Health Scheme 127 and TierOne bank 123 KPMG Consulting 80 ‘KPMG Marketplace’ 178 Kramer, Robert 155 Kreuger Crash (1932) 117, 126 kuaijishi 168 Landis, James, and 1933 Securities Act 58 Lee, Matthew (Lehman senior vice president) 125 Lehman Brothers 123–5, 130, 148 Lewin, Audrey Hale see Waterhouse, Lady Audrey Lewin, Colonel Thomas H ‘Thangliena’ 44–5, 47, 171 Lewis, Wyndham 48–9 Lin, Xei, Bank Bookkeeping (1907) 168 Lipsey, Lord 125–6 London, Midland & Scottish Railway 37 London and North Eastern Railway 37 London and North Western Railway Co 34 Lopes, Lord Justice ‘Watchdog’ 134, 137 Lord, Gilly (PwC) 201 Lowe & Bingham 168 Lucretius, On the Nature of Things 23 Naidoo, Shomalin 178 Nally, Dennis (PwC global chairman) 139 National Student Marketing (1969) 140 Neroni, Diotisalvi 191 New York State Society of Certified Public Accountants 43–4, 203 256 315-75337_ch01_3P.indd 256 6/4/18 8:12 PM Index Price, Waterhouse, Peat & Co 38–9, 74 Price Waterhouse 3, 37–8, 40, 45, 48, 54, 56, 58, 61, 64, 73–4, 84, 89, 92, 96, 102, 105, 109, 118–19, 137, 140, 152, 155, 169, 185, 212 and Edwin Flack 39 and ‘Management Consultancy Services’ 63 and McKesson & Robbins 134–5 and Nifty R&D 161 and the Rolls Razor Case (1965) 118 and the Royal Mail case (1931) 118, 128 PricewaterhouseCoopers (PwC) 1–3, 5, 61, 73–5, 80–1, 91, 105–6, 114, 121–2, 126–7, 133, 135, 137–9, 152, 154, 158–61, 167, 170, 174, 187, 201, 206, 209 and Caterpillar Inc 155 and the Centro case 83, 142 and Colonial BancGroup and the Corporate Reporting Users Forum 57 and Lowe & Bingham 168 Private Eye (magazine) 159 Public Company Accounting Oversight Board (PCAOB) 119–22, 144–6, 172, 203, 209 PwC Consulting 80–1 Newton, Sir Isaac viii Northern Rock 122, 142, 148 O’Keeffe, Ned 147 Olympus (Japan 2011) 126 Opinions on Promoting More Competitive and Bigger Accounting Firms 173–4 Organisation for Economic Co-operation and Development (OECD) 160 Pacioli, Luca, Summa de Arithmetica (1494) vii, x, 11, 55, 68, 116, 195 Page, Michael (author) 143 Panama Papers (2015) 159 Paradise Papers (2017) 7, 159 Parker, W.E (Price Waterhouse) 92 Parks, Tim, Medici Money 20 ‘Partner Acceptance Course’ (PAC) 85 Pearce, Christopher Peat, Sir Harry 39 Peat, Sir William 39 Peat Marwick 3, 75, 170 Peat Marwick Mitchell 84 Peek-a-boo see Public Company Accounting Oversight Board (PCAOB) Peele, James, The maner and fourme how to kepe a perfecte reconying ix–x Penn Central (1970) 140 PeopleSoft Inc 141 PepsiCo 94, 159 Peruzzi (Medici Bank rival) 26, 192 Petrobras 135 ‘Piero il Gottoso’ see de Piero Medici Pietzka, Erik 91 Pingzhun, Ding 172–3 Pitti, Luca 191 Portinari, Giovanni 25 Portinari, Tommaso 26, 192, 194 Power, Professor Michael 131, 148–9, 195, 210 Price, Holyland & Waterhouse 41 Price, Samuel ‘Sammy’ 28, 29, 40, 41, 45, 48, 73, 84, 178 Price, Waterhouse & Co 58, 74 Quaker movement 41–5, 47, 97, 103–4, 211 qui tam laws 183 Quinn, Thomas F (Price Waterhouse) 155 Raghunathan, Bhanu (author) 143 Railway Clearing House 30, 34, 37, 129, 212 Rake, Sir Michael (KPMG) 132 Rapoport, Michael 132 Redpath, Leopold 36 Reich, Robert B (author) Religious Society of Friends see Quaker movement 257 315-75337_ch01_3P.indd 257 6/4/18 8:12 PM Index Soll, Jacob 129 The Reckoning: Financial Accountability and the Making and Breaking of Nations 26 Somerset Maugham, Of Human Bondage 96 Somersetshire Midland Railway 35 South Eastern Railway 44 South Sea Bubble 35, 44 Southern Railway 37 Stacey, Nicholas, in Accounting Review (1958) 12 Stevens, Mark 86–7, 90, 92, 94, 102, 109–10, 137, 188 and The Big Six 97 Steward, Mark 164 Strategy& 80–1, 158 Stuttard, Sir John (Coopers & Lybrand) 171 Sun Tak-kei, David 165–6 Repo 105 123–5 Rider, C Anthony (EY) 102–3 Ronen, Professor Joshua 201–2 Rovnick, Naomi, in South China Morning Post 165–6 Rozvany, George (tax specialist) 197, 200 Rudd, Kevin (former Australian prime minister) 154 Ruihua 174, 174 S&P 500 index Samek, Steve (US head operations Arthur Andersen) 105 Sarbanes-Oxley Act (Sarbox) 8, 62, 80, 119–20, 127, 144, 146, 201 Sassetti, Francesco 194 Satyam (India 2009) 126 Schlich Bill (EY partner) 125 Seatree, William 92 Securities and Exchange Commission (SEC) 6, 56, 119, 121, 123, 136, 141, 162–3, 172, n174, 202 Securities and Futures Commission (SFC) 163–4 Securities and Futures Ordinance 164 Seijts, Gerard (scholar) 108 Sen, Meng, Bank Bookkeeping (1907) 168 Sex Disqualification (Removal) Act (1919) 89 Shropshire Union Railway & Canal Co 34 Sikka, Professor Prem 57, 141, 161, 203 ‘Financial Crisis and the Silence of Auditors’ 205 Sino-Forest (China 2010) 126, 136 Skidelsky, Robert 10 Skinner, Chris (author) 150 Sneath, George (Price Waterhouse) 38, 45, 74, 76, 101, 105 Snowden, Edward 11, 158 Society of Indian Law Firms 62 Soderini, Niccolò 191 Tani, Angelo (Medici Bank) 26, 82, 87, 116, 194 Tanis, Beth 137 Task Central 178–9 Taylor, Bean & Whitaker (TBW) 5–7, 83, 135, 137–8, 142, 196, 207 Thackeray, William 11 Toffler, Barbara, Final Accounting (2003) 92 Tohmatsu, Nobuzo 48 Touche, Sir George 75 Touche Ross & Co 3, 78, 100–1 Touche Ross Bailey & Smart 84 Trollope, Anthony, The Way We Live Now 35 Trotter, David (author) 48 Troubled Asset Relief Program Tyco 136 Ucuzoglu, Joe (Deloitte US CEO) 121–2 UK Audit Commission 198 UK Economic Affairs Committee 140, 186, 195, 197, 201 UK Joint Disciplinary Scheme (JDS) 139 258 315-75337_ch01_3P.indd 258 6/4/18 8:12 PM Index Webb, Jonathon in Forbes magazine 137 Wedgwood, Josiah 68, 116 Westec (1965) 140 Whinney, Frederick 57–8, 131 Whinney, Sir Arthur 101 Whinney, Smith & Whinney 38 Whitelaw, Marjorie, ‘The Lunacy of Railways’ 35 Whittle, Andrea 94 Wikileaks 158–9 Willett, Caroline (author) 143 Williamson, Peter J 167 Wolmar, Christian (rail historian) 35 Women Chartered Accountants’ Dining Club 89 World Bank 170 WorldCom 4, 120, 144 Wu, Anthony (EY chairman China) 170–1 Wyon, Sir Albert 39–40, 45, 101, 105 UK National Audit Office 116, 198 US Board of Tax Appeals 61 US Department of Justice 155 US Senate Committee on Banking and Currency 202 Valukas, Anton R 123–4, 130 Wall Street Journal, The 76, 102–3, 132, 139 Walsh, Thomas (Price Waterhouse) 155 Walter Turnbull 80 Walters, Ralph (Touche Ross & Co.) 101, 206 Ware, Hadham & Buntingford Railway 34 Waste Management (company) 4, 120 Waterhouse, Edwin 36, 41, 44–6, 73–4, 101, 105, 161 Waterhouse, Lady Audrey 47–8 Waterhouse, Lady Louise 48–9 Waterhouse, Sir Nicholas 39, 42, 46–9, 55, 64, 73, 101, 118, 212 Waterhouse & Co 49 Waterhouse and Peat 38 W.B Peat & Co 28, 38–9 Zeff, Stephen A 100, 105, 151–2, 203 in Accounting Horizons 97 ‘How the US Accounting Profession Got Where It Is Today’ (2003) 62 259 315-75337_ch01_3P.indd 259 6/4/18 8:12 PM About the AuthoRS Kristian Bjarnason IAN D GOW is professor and director of the Melbourne Centre for Corporate Governance and Regulation at the University of Melbourne He was previously assistant professor at Harvard Business School and Kellogg School of Management He has held positions at Morgan Stanley, General Motors, Stern Stewart & Co., and Andersen Consulting He holds a Ph.D in Business Administration from Stanford University and an MBA from Harvard Business School STUART KELLS’ book Penguin and the Lane Brothers won the 2015 Ashurst Australian Business Literature Prize Kells was formerly Assistant Auditor-General of the state of Victoria, and a director at KPMG He also worked at Deloitte, S G Warburg and, after the 2008 financial crisis, with one of the receivers of Lehman Brothers 260 315-75337_ch01_3P.indd 260 6/4/18 8:12 PM Berrett-Koehler is an independent publisher dedicated to an ambitious mission: Connecting people and ideas to create a world that works for all We believe that the solutions to the world’s problems will come from all of us, working at all levels: in our organizations, in our society, and in our own lives Our BK Business books help people make their organizations more humane, democratic, diverse, and effective (we don’t think there’s any contradiction there) Our BK Currents books offer pathways to creating a more just, equitable, and sustainable society Our BK Life books help people create positive change in their lives and align their personal practices with their aspirations for a better world All of our books are designed to bring people seeking positive change together around the ideas that empower them to see and shape the world in a new way And we strive to practice what we preach At the core of our approach is Stewardship, a deep sense of responsibility to administer the company for the benefit of all of our stakeholder groups including authors, customers, employees, investors, service providers, and the communities and environment around us Everything we is built around this and our other key values of quality, partnership, inclusion, and sustainability This is why we are both a B-Corporation and a California Benefit Corporation—a certification and a for-profit legal status that require us to adhere to the highest standards for corporate, social, and environmental performance We are grateful to our readers, authors, and other friends of the company who consider themselves to be part of the BK Community We hope that you, too, will join us in our mission A BK Business Book We hope you enjoy this BK Business book BK Business books pioneer new leadership and management practices and socially responsible approaches to business They are designed to provide you with groundbreaking and practical tools to transform your work and organizations while upholding the triple bottom line of people, planet, and profits High-five! To find out more, visit www.bkconnection.com 315-75337_ch01_3P.indd 261 6/4/18 8:12 PM Berrett–Koehler Publishers Berrett–Koehler Publishers Connecting people and ideas to create a world that works for all Dear Reader, Thank you for picking up this book and joining our worldwide community of Berrett-Koehler readers We share ideas that bring positive change into people’s lives, organizations, and society Berrett–Koehler Publishers To welcome you, we’d like to offer you a free e-book You can pick from Connecting people of andour ideas among twelve bestselling books by entering the promotional code to create a world that works for all BKP92E here: http://www bkconnection.com/welcome www.bkconnection.com When you claim your free e-book, we’ll also send you a copy of our e-newsletter, the BK Communiqué Although you’re free to unsubscribe, there are many benefits to sticking around In every issue of our newsletter you’ll find • • • • • A free e-book Tips from famous authors Discounts on spotlight titles Hilarious insider publishing news BK Logo lock-up A chance to win a prize for answering a ARGUS, riddleLLC MASTHEAD 10/22/07 Best of all, our readers tell us, “Your newsletter is the only one I actually read.” So claim your gift today, and please stay in touch! Sincerely, Charlotte Ashlock Steward of the BK Website Questions? Comments? Contact me at bkcommunity@bkpub.com 315-75337_ch01_3P.indd 262 6/4/18 8:12 PM ... nobility of accountancy, and of the past, present and future of the Big Four * The book is organised as follows Part I, ‘Infancy’, investigates the economic and cultural history of the Big Four We... as the foundation of the Big Four brands 10 Clean The impairment of Big Four auditing  11 Get Ready to Dance Conflicting interests in Big Four taxation services 12 One Four Ten The Big Four. .. with the problems that faced the profession There is another difficulty, too, for people wishing to look upon a true picture of the accounting profession: much of the extant history of the Big Four