Large Accounting Firms in U.K. Running Low on Equity, May Not Be Able to Afford Fines

By:
Chris Gaetano
Published Date:
Jun 25, 2020
Major accounting firms in the United Kingdom, which have been under increased scrutiny over the years in the wake of the Carillion accounting scandal, are low on equity and may not be able to pay the fines the government may impose on them. Richard Murphy, an economics professor at City University and a co-founder of the international group Tax Justice Network, was quoted in Bloomberg saying, “These are hollowed-out firms." While the firms themselves make plenty of profit, the majority of it goes to the partners rather than the firms proper. This has led to vast gulfs between profits and equity levels, indicating that partners have left little stake in the firms themselves. According to Karthik Ramanna, professor of business and public policy at the Blavatnik School of Government at Oxford University, "Not all equity is created equal; some equity will be quite useless to meet liability claims.” KPMG, for example, could face a fine of up to 250 million pounds in a government bankruptcy case related to the Carillion scandal, while it has 390 million pounds worth of equity.

In the United States, meanwhile, class action lawsuits represent an even bigger threat, as their dollar amounts tend to be much larger than government fines. PwC, for example, had to pay a $325 million settlement in response to a suit regarding a fraud at Colonial Bank.

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