28 March 2006

Ex-KPMG partner pleads guilty in tax case

The first crack in the solid wall has appeared. One of the KPMG partners indicted for selling multiple tax shelters costing the US billions of dollars has pleaded guilty in order to receive a reduced sentence.

The ex-partners (they were indicted and thrown out of the practice in order for KPMG to escape indictment) had kept a united front that the shelters were not illegal at the time they were created and were just creative ways to generate losses using the tax code.

The agreement with the accounting firm was an attempt by the government to not bring down another of the gigantic global accounting firms. What was once known as the "Big 8" has been reduced to five with mergers and the implosion of Arthur Andersen. Losing KPMG would mean that four firms would control the vast majority of large corporate audits and tax planning. Global corporations rely on the Big 5 because they have offices wherever the companies do and can audit and advise on local taxes. Many governments have already commented on the lack of diversity in the firms and losing another major firm would have been a large blow to the profession.

We will see if anyone else decides to flip now that one has. It's the classic prisoner's dilemma. Who do you trust?

No comments: