Ernst & Young vs KPMG

Ernst & Young traces its origins to four separate accounting practices founded in the nineteenth century — including Harding & Pullein in England (1849), Ernst & Ernst in Cleveland (1903), Arthur Young & Company in Chicago (1906), and Whinney, Smith and Whinney in London (1894). None of the founders could have imagined that their small practices would eventually merge into a single firm employing 400,000 people.

Ernst & Whinney merged with Arthur Young in 1989, creating Ernst & Young — the largest accounting merger in history at the time, creating a firm with revenues of $4.3 billion and operations in over 100 countries. The tagline "Quality In Everything We Do" would later attract considerable irony given subsequent audit failures.

EY audited Wirecard, the German payments company, for ten years while the company was conducting a €1.9 billion fraud — booking money in bank accounts that did not exist. German regulators found that EY had failed to properly verify the existence of cash balances that represented a quarter of Wirecard's claimed assets. Wirecard collapsed in June 2020. EY faced investor lawsuits seeking billions in damages and a regulatory ban from new audit engagements in Germany. The scandal became EY's defining reputational crisis.

EY announced "Project Everest" in 2022 — a plan to split the firm into two separate entities: an audit firm and a consulting firm. The rationale was that combining audit and consulting created conflicts of interest and that the consulting business was undervalued inside the partnership structure. EY spent over $100 million and took on $700 million in debt preparing for the split. In April 2023, EY's U.S. partners voted against it — 40% of global revenues giving them effective veto power. The firm that had nearly become two remained one, having spent a year and hundreds of millions of dollars to reach the same conclusion it had started with.

Janet Truncale took over as EY's global CEO in 2024, succeeding Carmine Di Sibio who had championed and then watched Project Everest collapse. EY continued cutting headcount in Germany — where Wirecard's shadow had depressed growth — and in other markets where consulting demand had softened. Germany's accounting watchdog APAS handed EY a €500,000 fine and a two-year ban from taking on new audits of public-interest companies, related to its Wirecard audit work from 2016 to 2018. The firm that had promised quality in everything it did was managing the consequences of a decade-long audit failure and a half-billion-dollar strategic miscalculation simultaneously.

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.