Magazine article Strategic Finance

KPMG Fined for Auditor Independence Violations

Magazine article Strategic Finance

KPMG Fined for Auditor Independence Violations

Article excerpt

The Securities & Exchange Commission (SEC) imposed a significant penalty on KPMG for violating auditor independence rules. The SEC assessed KPMG $8.2 million for providing nonaudit restructuring, corporate finance, bookkeeping, and payroll services to three audit clients, which the Commission didn't name. In a separate instance, KPMG hired an individual who had recently retired from a senior position at an affiliate of an audit client and then loaned him back to that affiliate to do the same work he had done as an employee. This resulted in the professional acting as a manager, employee, and advocate for the audit client. These services are prohibited by Rule 2-01 of Regulation S-X of the Securities Exchange Act of 1934.

The SEC didn't name the companies that received the services or disclose whether the services had been solicited by the clients. Bloomberg News identified one of the companies as General Electric in its article "Is the SEC Going Easy on General Electric?" Paul A. Beswick, the SEC's chief accountant, didn't reply to an e-mail asking whether the clients had contributed to the independence violations or why the SEC wasn't censuring KPMG for providing tax services, which was the subject of a separate Commission report.

In that separate report discussing the potential violation of providing tax services, the SEC was a bit unclear about why it wasn't penalizing KPMG for overstepping the independence laws. Auditors are allowed to provide tax services as long as the audit staff doesn't become a de facto employee of the client. …

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