Signed Off

Jan 2008

Four names. Deloitte, EY, KPMG and PwC. By the U.S. Government Accountability Office’s count in 2008, the four largest firms audited 98 percent of the 1,500 largest U.S. public companies. In 2025 the audit regulator put the U.S. firms’ share at about 80 percent of the market value of listed companies. This story follows what regulators, courts and the firms themselves said when their audits were challenged.

30 Jul 2002

Who pays. A U.S. company that sells shares to the public must have its accounts audited by an independent accountant. Since 2002 the law has made the company’s audit committee directly responsible for appointing, paying and overseeing the auditor, and its members must be independent directors who take no consulting or other fee from the company. Two House of Commons committees later said that a very long tenure “calls into question” an auditor’s independence, and KPMG said its independence was not impaired. No regulator or court quoted in this story found that a firm signed accounts because it was paid.

16 May 2018

What an audit is for. The company’s directors prepare the accounts. The auditor’s standard, as the PCAOB states it, is “reasonable assurance about whether the financial statements are free of material misstatement, whether caused by error or fraud.” That is “reasonable, but not absolute, assurance”: it is not a guarantee, and not a search for every error. Fraud may also be hidden by collusion, which can lead an auditor who “properly performed the audit” to accept false evidence.

1998

Eight became four. In the 1980s there were eight big U.S. firms. In 1987 Peat Marwick merged with KMG Main Hurdman, the U.S. affiliate of a European network, to form KPMG Peat Marwick, now KPMG. In 1989 Ernst & Whinney and Arthur Young formed Ernst & Young, and Deloitte Haskins & Sells and Touche Ross formed Deloitte & Touche. In 1998 Price Waterhouse and Coopers & Lybrand became PricewaterhouseCoopers.

16 Oct 2001

Chicago. Another of the eight, Arthur Andersen, was based here. It audited Enron’s public financial statements and also provided internal audit and consulting services to the energy company. On 16 October 2001 Enron announced a $1.01 billion charge to earnings. The next day the SEC told Enron it had opened an investigation.

9 Nov 2001

The policy. The Supreme Court’s account, which draws on the government’s brief, is this. On 10 October 2001 a partner urged everyone at a training meeting to comply with the firm’s document retention policy; the Court noted that such policies are common and that it is “not wrongful” to tell staff to follow a valid one “under ordinary circumstances.” Meetings on the Enron team “were followed by substantial destruction of paper and electronic documents.” On 8 November the SEC served subpoenas on Enron and Andersen; the next day an e-mail told the team “No more shredding.”

15 Jun 2002

The verdict. In March 2002 Andersen was indicted on one count of obstruction of justice. The jury deliberated seven days, said it was deadlocked, and after three more days found the firm guilty on 15 June. The Justice Department said it was “extremely gratified.” The firm’s own statement on 31 August 2002 said it had “voluntarily relinquished, or consented to revocation of, its firm permits”; it ended its role as auditor of public companies that day, and none of its more than 1,200 public-company audit clients remained.

31 May 2005

The reversal. On 31 May 2005, after the Fifth Circuit had affirmed, the Supreme Court reversed the conviction in an opinion by Chief Justice Rehnquist. The jury instructions, it held, did not state the crime properly: they let jurors convict even if the firm “honestly and sincerely believed that its conduct was lawful,” and did not require a link to any particular proceeding. The ruling was about those instructions; Andersen had appealed, a trade paper reported, to clear the firm’s name. The Justice Department said in November 2005 that it would not retry the case, almost three years after the firm stopped auditing.

30 Jul 2002

Washington. After the scandals at Enron and WorldCom, Congress passed the Sarbanes-Oxley Act, approved on 30 July 2002. It created the Public Company Accounting Oversight Board, charged with “a continuing program of inspections” of audit firms, and made it unlawful for an audit firm to provide a client with services such as bookkeeping during the audit. It also told the GAO to study consolidation among the big firms; in 2008 the GAO said “current concentration does not appear to be having a significant adverse effect,” though losing another large firm would reduce companies’ choice.

29 Aug 2005

A tax case, not an audit. In August 2005 KPMG’s U.S. firm admitted to criminal wrongdoing in selling tax shelters and agreed to pay $456 million, with prosecution deferred. The Justice Department said KPMG admitted a fraud that produced at least $11 billion in phony tax losses, and it charged nine people, whose charges were accusations. KPMG’s chairman said: “We regret the past tax practices that were the subject of the investigation.” The charge against the firm was dropped in January 2007; by then 16 former executives were charged, and in 2008 an appeals court upheld the dismissal of charges against 13 former partners and employees, holding that prosecutors had violated their Sixth Amendment rights by pressuring KPMG over their legal fees.

11 Mar 2010

Lehman’s auditor. Lehman Brothers’ bankruptcy examiner, Anton Valukas, reported in March 2010 that its auditors, Ernst & Young, “were aware of but did not question” Lehman’s use and nondisclosure of Repo 105, and that “colorable claims” existed: enough to put before a court, not a finding. EY replied that its 2007 opinion was fair, “and we remain of that view,” and that Lehman’s bankruptcy was “not caused by accounting issues or disclosure issues.” In 2013 EY agreed to pay $99 million to settle an investor class action, denying all liability; in 2015 it paid $10 million to settle New York’s lawsuit, saying there were “no findings of wrongdoing.”

Mar 2008

New Century. The subprime lender New Century collapsed in April 2007. Its bankruptcy examiner, Michael Missal, wrote that KPMG, its outside auditor since 1997, “contributed to” accounting deficiencies “by enabling them to persist,” and said the estate might sue KPMG for professional negligence but that such a case would be difficult to win. KPMG answered: “We strongly disagree with the report’s allegations concerning KPMG.” KPMG later settled with New Century’s trustee on undisclosed terms and agreed to pay $44.75 million toward a shareholder settlement; these were settlements, not findings.

17 Jun 2019

The inspectors’ list. The PCAOB inspects a sample of each big firm’s audits. In June 2019 KPMG’s U.S. firm agreed to pay the SEC $50 million. The SEC’s order said senior people in its audit quality group “improperly obtained and used confidential information belonging to the PCAOB,” which the SEC said it wanted because the firm had a high rate of deficiency findings, and that auditors had shared answers to training exams. KPMG admitted the facts; a spokesperson said the firm had learned important lessons.

28 Jun 2022

The ethics exam. In June 2022 EY’s U.S. firm paid the SEC $100 million. The SEC found that 49 EY professionals “obtained or circulated” answer keys to the CPA exam, and that hundreds more cheated on continuing-education courses in ethics. EY admitted it did not correct its submission to SEC investigators after an internal investigation confirmed the cheating. EY said its response “has been thorough, extensive, and effective.”

31 Mar 2023

Wirecard. In June 2020 Wirecard said EY, its auditor, could not confirm €1.9 billion of cash, and EY declined to sign its 2019 accounts; Wirecard then filed for insolvency, and EY, which had given earlier accounts unqualified opinions for more than a decade, said, Reuters reported, that the hole was the result of a sophisticated global fraud. In 2023 Germany’s audit watchdog found breaches of professional duty in the 2016 to 2018 audits and fined the audit firm €500,000, banning it from new audits of public-interest companies for two years. It did not name the firm, though the annual reports name EY; it made no formal decision on intent or negligence, and the decision was open to appeal. EY said: “We regret that the collusive fraud at Wirecard was not uncovered earlier.”

12 Oct 2023

Carillion. KPMG audited Carillion for all 19 years of its life, charging £29 million and never giving a qualified opinion (one that flags a problem), a House of Commons report noted; KPMG said its independence was not impaired. Carillion went into liquidation in January 2018. In October 2023 the U.K. regulator said KPMG had “failed to gather sufficient appropriate audit evidence” and that the client’s importance “created a risk to their objectivity,” but that the breaches were “not dishonest” and mostly not intentional, deliberate or reckless; it also made “four findings of a lack of objectivity.” KPMG’s U.K. chief executive said: “I am very sorry that these failings happened in our firm.”

17 Sep 2020

Deloitte. In 2020 an independent tribunal of the FRC, after a seven-week hearing, found misconduct in Deloitte’s audits of the software company Autonomy in 2009 and 2010, including failures of scepticism and evidence and, for the firm and one partner, of integrity and objectivity; it fined Deloitte £15 million. Deloitte said: “We regret that the FRC tribunal has ruled that aspects of our audit work on Autonomy between 2009 and 2011 fell below professional standards required.” The two former partners said they “disagree with the findings.” Separately, House of Commons committees noted that Deloitte, Carillion’s internal auditor at about £775,000 a year, rated only 15 of 309 recommendations high priority.

13 Sep 2024

Evergrande. In March 2024 China’s securities regulator accused the developer Evergrande of fraud; authorities said its onshore unit overstated revenue by 564 billion yuan in two years to 2020. In September the Ministry of Finance suspended PwC Zhong Tian, the unit’s auditor, for six months, and the ministry’s fine, the securities regulator’s fine and a confiscation of revenue came to 441 million yuan. The securities regulator said “to a certain extent” PwC had “covered up and even condoned” the fraud, in its 2019 and 2020 audits. PwC’s global chair called the audit team’s work “completely unacceptable.”

Jun 2023

A leak, not an audit. PwC Australia’s trouble in 2022 and 2023 was in tax advice. The Tax Practitioners Board found that PwC lacked adequate arrangements to manage conflicts of interest, and ended the registration of a partner who, it found, shared confidential Treasury information with other PwC staff; the Australian securities regulator later banned him from financial services for eight years. The Senate committee titled its June 2023 report “PwC: A calculated breach of trust.” PwC Australia’s acting chief executive apologised for “betraying the trust placed in us.”

Mar 2025

What the inspectors found. Each year the PCAOB inspects some audits at each big firm, chosen partly for risk and partly at random, and reports the share where the firm had not obtained enough evidence to support its opinion: in 2023, 21% at Deloitte’s U.S. firm, 37% at EY’s, 26% at KPMG’s and 18% at PwC’s; in 2024, 14%, 28%, 20% and 16%. For all firms inspected the 2024 rate was 39%. The PCAOB says the rate covers only audits inspected, not how often this happens across a firm’s audits, that results are not necessarily comparable among firms, and that its reports are “not intended to serve as overall rating tools.” A finding also “does not necessarily mean that the financial statements are materially misstated.”