I think KPMG did entirely the wrong thing for their partners, both the accused and those that remained. A partnership is like a fraternity, for good and bad. And those guyd had partnership agreemts committing the firm to represent them in firm related matters. I know, I was a Managing Director (partner equivalent ) at BearingPoint, successor firm of KPMG Consulting. The agreements then were modeled after the KPMG partner agreements.

That being said, I don’t know enough about BDO to say if their decisions to fight are pride or wisdom. Since they have been winning (even winning on the same tax shelter case that KPMG paid 400+ million on when they capitulated,) I would say they are very good at choosing very good lawyers, for sure. But I have also heard from some others who have been their clients and their competitors. As I said in one of my posts, they are betting the farm every time they choose to fight instead of settle. If they’re in the right, then fight. But if they’re just being stubborn, cheap or irresponsible, they’re imposing that on everyone, their staff, other partners, clients, vendors, etc., who bear the brunt. What I’ve heard is that they have been taking on increasingly risky clients and engagements the last few years in order to suck the money out for existing partners for as long as they last, which some of them thought after some of the most recent suits, is not very much longer. Even though they win the fight, it also costs time, money and focus to keep having to clean up messes, no matter how good your hoover.

Krupo — I had a sentence or two in there about subsequent receipts, but I guess I edited them out before hitting ‘Publish’.

Francine — Is BDO doing the right thing compared to what KPMG did?

Two things:

1) Faked confirmations were the smoking gun in the Parmalat/Deloitte/Grant Thornton debacle. GT excuse? I was duped! ‘Nuf said.

2)BDO has been fighting (albeit successfully) instead of settling because they can’t afford to settle. They also probably have very littel insurance after all their suits. (They also seem to want to protect their partners, unlike KPMG, for example, who tossed them overboard without a life preserver.) They obviously don’t have the scratch to give away 20 million here, 40 million there, 170 million over yonder…Pretty soon you’re talking about real money!

While I rarely got involved with audits (thank goodness) I would always give permission for third parties to communicate directly with audit staff, by phone if necessary. It’s not that hard but requires a degree of will to make clear the necessity of performing additional checks.

In their defense, Seidman asserted that BES management deliberately misled them. Basic testing of the kind I’m suggesting could have enearthed the extent to which management was engaged in such activity.

While we don’t know the precise details, there must have been an element of management impeding the conduct of the audit. If that’s the case then BDO should have walked or qualified. IMO.

At present, the company is relying on its past win rate in the Florida appellant courts. That’s a dangerous strategy. Far better to ‘fess up, negotiate a better settlement and move on because for as long as this is hanging over the firm’s head, client loyalty will be hard to manage.

We may argue over the wisdom of the jury’s findings in this case but no-one can ignore it or assume it will not be upheld. In the meantime, the firm looks like a lame duck and as they say: perception is reality.