Just how powerful are the Big Four accounting firms? Extremely, or that seems to be the implication from memos written by KPMG lawyers when they were negotiating with prosecutors in 2005, telling them not to prosecute the firm for selling fraudulent tax shelters.

KPMG defence lawyers told prosecutors that criminal charges would be a 'nuclear bomb'' that would destroy one of the four remaining large accounting groups, after the Enron inquiry had eradicated Andersen. And they warned that it would leave more than 1000 companies without an auditor, reports Bloomberg.

Given that senior US Justice Department officials intervened and KPMG subsequently avoided an indictment, the argument seemed to have worked.

These documents, although several years old, have only just come to light as part of the criminal investigation into 18 former KPMG partners who have been accused of orchestrating the tax shelters. They are awaiting trial in September on charges of cheating the US Treasury out of at least $2 billion.

Now in fairness to KPMG, its behavior was different to Andersen and it certainly wasn't the only accounting firm peddling tax shelters.

But the documents suggest that the Big Four have marketed themselves superbly, convincing clients and the US Government that they are the only people who can really audit the books of big banks and multinationals. But that's just marketing. In time, in a free market, there's no reason why other firms shouldn't fill the gap left by Andersen.

The documents also make interesting reading in light of what's since happened to Ernst & Young. Former partners of E&Y have been charged with selling tax shelters that, among other things, used the September 11 terrorist attacks to cover up the lies. Which is about as low as you can get.

As I said in this entry at the time, the treatment of Ernst & Young is very similar to how KPMG was handled. Which tells us the memo from KPMG's lawyers and all that marketing about limited choice has worked.