Arthur Andersen (defunct) vs KPMG

Arthur Edward Andersen founded his accounting practice in Chicago in 1913 at age 28. In its early years, the firm famously refused to certify the accounts of a railroad client that was misrepresenting its revenues. The client threatened to take its business elsewhere. Andersen reportedly told the client: "There is not enough money in the city of Chicago to make me do that." The client left. The story was repeated in the firm's training programmes for decades — as a founding myth that would make the firm's eventual destruction all the more ironic.

Through the mid-twentieth century, Arthur Andersen grew to become the most prestigious accounting firm in the United States. The firm was known for its culture of uniformity — partners across the country were expected to dress the same, speak the same, and apply the same standards. Andersen recruited from the top universities and invested heavily in training. At its peak, the firm had 85,000 employees in 84 countries. The "Arthur Andersen way" was a benchmark that other firms aspired to match.

Arthur Andersen's consulting division had grown so large and profitable that it dwarfed the audit practice. The consultants resented subsidising the auditors. In 2000, after years of internal warfare, the consulting division was spun off as Accenture — which would go on to become one of the most valuable professional services companies in the world. Arthur Andersen retained the audit business but had lost its most profitable revenue stream, leaving the firm financially dependent on a single catastrophic client failure away from disaster.

Arthur Andersen had been Enron's auditor since 1985 and earned $52 million from the company in 2000 alone — split roughly equally between audit and consulting fees. When Enron's accounting irregularities became public in October 2001, Andersen employees began shredding documents and deleting emails on the orders of a senior partner. Investigators later concluded that tonnes of documents were destroyed in the weeks before the SEC formally requested them.

The U.S. Department of Justice indicted Arthur Andersen for obstruction of justice in March 2002. The indictment alone was fatal — major clients immediately terminated their relationships with the firm, unwilling to be associated with an indicted auditor. By June 2002, Arthur Andersen had ceased auditing public companies. 85,000 employees had lost their jobs. In 2005, the Supreme Court unanimously overturned the conviction, ruling that the jury instructions had been legally flawed. Arthur Andersen's conviction had been wrongful. But the firm was already gone — dissolved three years earlier, 89 days after the indictment, before any court had found it guilty. It remains the most dramatic corporate death in American professional services history.

KPMG's oldest predecessor traces its origins to an Amsterdam trading house founded in 1818. The K in KPMG stands for Piet Klijnveld (Amsterdam, 1917); the P for William Barclay Peat (London, 1870); the M for James Marwick (New York, 1897); the G for Reinhard Goerdeler (Germany). It took until 1987 for all four national traditions to unite under a single name that nobody could fully explain.

KPMG was created in 1987 through the merger of Peat Marwick International and KMG (Klijnveld Main Goerdeler). The combined name was chosen because neither side would accept the other's name as primary. Partners from the two legacy firms reportedly maintained their separate cultures and rivalries for years after the official merger. The name itself — four initials representing four men from four countries across two centuries — became the most complex origin story in professional services.

In 2005, KPMG admitted to criminal wrongdoing in connection with fraudulent tax shelters that had helped wealthy clients evade approximately $2.5 billion in taxes. KPMG paid $456 million in fines — the largest criminal tax case in U.S. history at the time — and agreed to a deferred prosecution agreement. The Department of Justice chose not to indict the firm itself, reasoning that doing so would likely destroy it and harm innocent employees and clients, as had happened with Arthur Andersen three years earlier. The "too big to indict" logic that would later apply to major banks was applied here first.

KPMG South Africa became entangled in the "state capture" scandal surrounding the Gupta family's alleged corrupt influence over the South African government during the Zuma administration. KPMG had audited Gupta-linked entities and produced a report used to justify the firing of the country's finance minister. KPMG later withdrew the report, acknowledging it should never have been issued. Seven senior KPMG South Africa partners resigned. The South African Revenue Service terminated its relationship with KPMG.

KPMG audited Silicon Valley Bank and issued a clean audit opinion just two weeks before SVB collapsed in March 2023 — the second largest bank failure in U.S. history at the time. KPMG had signed off on SVB's financial statements without flagging the bank's extreme vulnerability to rising interest rates, which had rendered its bond portfolio deeply underwater. Congressional investigators and regulators began examining whether KPMG's audit had missed warning signs that should have been visible to a competent auditor. The SVB episode followed the tax shelter scandal and the South Africa state capture debacle to make KPMG's recent history a catalogue of audit failures across three continents and two decades.