PwC’s settlement will not only raise professional indemnity fees, but damages the industry’s reputation, writes Michael West.
NEMO was commander of the Nautilus submarine, the mythical vessel that featured in Jules Verne’s novel 20,000 Leagues Under the Sea and the later novel The Mysterious Island.
In the wake of the record Centro settlement – struck under cover of budget darkness on Tuesday – the chatter in the partnership realms of the big four audit community was how PwC, Centro’s auditor, had blown the caper for everyone.
Indeed, there might even have been consternation on another mysterious island, confided one big-time auditor, even within another unfathomable double-hulled vessel with watertight compartments.
So secret is this vessel – said to be docked on a Caribbean island – that it would be improper of your correspondent to confirm or deny that it also might be named Nautilus.
Neither can we confirm that it may have, or may have had, four shareholders, or that it might have held the indemnity insurance for PwC, Ernst & Young, KPMG and Deloitte.
The big four, much of whose vast profits derive from advising people how to avoid paying billions in tax, were firing off press releases like blazes this week, pontificating on every imaginable aspect of the federal budget.
But when it came to fielding one simple and absolutely critical question, their squadrons of communications officers were as silent as the depths of the watery grotto where Nemo is interred.
When a client contracts the audit services of E&Y, Deloitte or KPMG, is that client buying the opinion of a blue-chip global audit firm? Or is the audit opinion merely one partner shooting the breeze?
The latter was the case, contended PwC in its defence to the Centro debacle. Nobody from the big four was prepared to contend otherwise this week. And nobody may know for a while as PwC bit the bullet and agreed to pay $66 million of the $200 million to shut the Centro case down.
NOBODY, incidentally, translates as “nemo” in Latin. And it is no accident that this exotic vessel that celebrates Captain Nemo’s legacy hails from faraway, tax-effective climes. It is also proof that accountants have a wicked sense of humour. The domicile of this mysterious Nautilus is Hamilton, Bermuda. So it is actually in the Atlantic, outside the Caribbean Sea.
The point is the same, it has as much to fear from the scrutiny of Australian authorities as it does from giant squids and maelstroms.
According to one source, the professional indemnity insurance payable for being a partner of one of the big four used to be $290 a day over a decade ago. One got coverage as long as one, meaning one partnership as opposed to one auditor, stumped up the first $US5 million of each claim. That’s a mighty deductible.
You could double that now, which must put big four partners up there with obstetricians, having to pay hundreds of thousands in insurance before opening their doors on January 1.
So there will be a collective hit taken, thanks to Nautilus, but it is the reputational damage to the profession, exacted by the PwC legal strategy, which irks its rivals.
Like a cabal of World War I generals, the PwC war room tacticians pushed their junior officers into battle armed with little more than a finger to point at whoever was more junior than themselves, while the plaintiffs on the other side, armed with bayonets and mustard gas, stood there grinning. Things should never, say three of the big four, got this far.
Michael West established michaelwest.com.au to focus on journalism of high public interest, particularly the rising power of corporations over democracy. Formerly a journalist and editor at Fairfax newspapers and a columnist at News Corp, West was appointed Adjunct Associate Professor at the University of Sydney’s School of Social and Political Sciences. You can follow Michael on Twitter @MichaelWestBiz.