The Securities and Exchange Commission on Friday charged accounting firm KPMG with violating auditor independence rules.
An SEC investigation found that the Big Four firm provided non-audit assistance such as bookkeeping and corporate finance services to the affiliates of companies it was auditing.
KPMG agreed to pay $8.2 million to settle with the SEC without admitting or denying the charges.
The SEC rules are designed to ensure that auditors maintain their objectivity and impartiality when auditing public-company clients and their affiliates.
The violations occurred at various times from 2007 to 2011.
Some KPMG personnel also owned stock in companies or affiliates they serviced as auditors, further violating the auditor-independence rules, the SEC said.
As part of the settlement, KPMG will disgorge about $5.2 million in fees it collected from the three clients, plus prejudgment interest of over $1.1 million. The SEC also assessed a penalty of nearly $1.8 million.
The settlement requires KPMG to educate firm personnel and monitor compliance with auditor independence requirements for non-audit services. The firm will employ an independent consultant to evaluate and implement the changes.
The SEC issued a separate report, using the KPMG case as an example, to explain the scope of its auditor-independence rules.
The report reminds audit firms not to loan their staff to audit clients in a way that results in the staff acting as employees of those companies. It also says auditors cannot provide otherwise permissible, non-audit services (like tax services) to an audit client if it’s inconsistent with other provisions of the independence rules.
The SEC maintains a Professional Practice Group within its Office of the Chief Accountant that can answer questions from auditors about the independence rules.
The FCPA Blog’s recent coverage of KPMG includes a Dutch settlement over bribery allegations on December 30 and the suspension of the Chinese units of several audit firms (including KPMG) on Wednesday.
The SEC’s press release on Friday about its settlement with KPMG can be found here.
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Julie DiMauro is the executive editor of the FCPA Blog and can be reached here.
1 Comment
There is something fundamentally wrong with the legal system where individual auditors and accountants are not individually persecuted for something as basic as insider trading and conflicts of interest arising from performing conflicting services. The total fines levied against KPMG as a firm in this case will be covered by insurance, and the only lessons those working as professionals for the firm (and other large accounting firms) learn is to not get caught (or conveniently retire). They didn't even admit to any wrong doing.
Every professional accounting association's statement of ethics, to which all professional accountants subscribe as part of being a member, clearly state they must act with integrity to uphold the status of the accounting profession.
Instead, we are seeing an increasing number of prosecutions that confirm the accountants as the gatekeepers, facilitators and brains behind money laundering, corruption and bribery schemes. KPMG was itself found guilty of this in the Netherlands recently in the case of Ballast Nedam. I have been privy to similar schemes during my career in the large accounting firms. I can confirm this type of behaviour is a standard practice in many offices, in order to increase revenues, create better chances of advancement and higher levels of personal remuneration.
This type of adjudications also send the wrong message to young professionals who have to put up with their seniors engaged in this type of practice and continue to do so with impunity. Anyone challenging the system is ostracized by the network and throws away their hard earned career. Under those circumstances it is very hard to do the right thing and so the system perpetuates itself.
Let me put one question to the public. Without the accounting (and legal) professionals to develop, activate and administer the money laundering structures, schemes and flows, where would the average corrupt official be? They generally wouldn't have a clue and would probably have to fall back on carrying the loot in bags and across borders.
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