KPMG Must Pivot Around Audit Clients in Creating US Law Practice

KPMG must overcome a prohibition against giving legal advice to audit clients as it becomes the first Big Four accounting firm to practice law in the US.

The prohibition stops the company from gaining potential legal customers from the hundreds of Fortune 500 and privately held companies it audits. KPMG agreed to the limitation to win Arizona Supreme Court approval Thursday to practice law in the state.

“This is the biggest challenge when you’re dealing with the Big Four—they have conflicts,” said Howard Rosenberg, head of talent intelligence and acquisition at Baretz + Brunelle. A prohibition against accounting firms providing consulting and auditing services under the same roof prompted, in part, EY to scrap the spin-off of its consulting business in 2023.

KPMG said it never planned to offer legal services to audit clients. The firm will apply the service restriction to both its public company and privately held audit clients, including those served by affiliates around the globe. Rather than shedding clients to comply with the order, the firm said it expects to gain “many” customers as a result of being able to practice law in Arizona.

KPMG is the largest non-lawyer-owned entity to join the Arizona legal community since the state’s high court in 2021 modified ethics rules to allow such organizations to practice law. The court’s goal with the change was to make legal services more accessible to consumers.

“We stand ready to help this court and judicial system with access to justice, but, candidly, our business is big business,” said Tom Greenaway, a KPMG principal and president of KPMG’s new Arizona venture.

The approval creates a deep-pocketed competitor for traditional Big Law firms that operate in the state, and KPMG has said Big Four rivals Deloitte, PwC, and EY will likely some day follow its lead into the US legal market.

The US step follows years of Big Four expansion into legal services in other markets, such as the UK and Australia. Professional regulations for US lawyers have largely barred non-lawyers from owning law firms except in Arizona and a few other jurisdictions experimenting with changes.

KPMG has said it seeks to provide services to multinational corporations that largely complement the work of traditional law firms, such as harmonize thousands of legal contracts as part of post-merger integration or help re-orient supply chains.

KPMG Boundaries

US auditor independence rules generally bar accountants from acting on behalf of company managers and US securities laws specifically prohibit auditors from providing legal services to their publicly traded clients.

The Arizona high court’s decision extends that logic to prevent possible conflicts of interest, said Robert Knechel, director of the International Accounting and Auditing Center and accounting professor at the University of Florida. “Law is by definition an advocacy service, and auditing is not,” Knechel said.

The Arizona court’s decision “still leaves open a wide market of non-audit clients to sell services to,” said Tom White, a retired Wilmer Hale partner and lecturer at Columbia Law School.

Over the past two decades, the Big Four have amassed lucrative consulting arms despite strict conflict-of-interest rules set after accounting scandals toppled Enron Corp. and WorldCom Inc. and now policed by the Securities and Exchange Commission. KPMG’s US advisory business generated roughly 40% of the firm’s $12.6 billion in revenue in 2024.

Legal services offer a fresh revenue stream to fuel firms’ growth or to invest in cutting-edge technology such as artificial intelligence.

As an Arizona alternative business structure, KPMG will have an internal compliance watchdog, said Natalie Knowlton, associate director for legal innovation for Stanford Law School. This watchdog, identified by KPMG Law US as longtime KPMG attorney David Rizzo, will be required to comply with Arizona’s requirement to file compliance reports twice a year.

“This is a much more heavily regulated environment than any other jurisdiction in the US,” Knowlton said. “There’s a compliance lawyer who is required to report to the bar in case there are any incidences of malfeasance or any lawyers have gone outside of the boundaries the court has set up. You don’t see that in any other law firms.”