PracticeConsultingSEC censures KPMG for 1996 audit

SEC censures KPMG for 1996 audit

The US Securities and Exchange Commission has issued a cease-and-desist order against Big Five firm KPMG for its 1996 audit of Porta Systems, saying it violated auditor independence rules.

The action overturned a decision made a year ago by an SEC administrative judge in the case of KPMG’s audit of Porta Systems, a Long Island company run by KPMG Baymark. KPMG Baymark specialises in corporate turnarounds and was affiliated with KPMG international, according to the New York Times online.

Commenting on its decision, the SEC was reported on NYTimes.com as saying: ‘We consider independence to be a keystone of our disclosure system.

‘Senior officials at KPMG failed to undertake any reasonable inquiry that necessarily would have led them to discover clear impairments of independence. Under these circumstances we believe the cease-and-desist relief is fully warranted.’

KPMG argued that it had discussed an arrangement with the administrative judge last year and believed it could proceed with its audit. However the SEC disagreed with the judge saying there had been a ‘misunderstanding’.

KPMG spokesman George Ledwith said: ‘We find it extremely unfortunate that the commission chose to disregard the findings of its own administrative judge.’

However the commission’s action, approved on a three to nil vote, with one commissioner not participating, has little practical effect on KPMG. The firm has not been fined, nor have any additional reporting restrictions been placed on it.

Last year a SEC judge concluded that while KPMG had violated securities regulations because KPMG and Baymark where not independent of each other, it had acted in good faith and should not be fined.

Under the agreement between KPMG and Baymark, the CEO of Porta received a $100,000 (£68,300) in an outstanding loan from KPMG, while KPMG’s fees would be paid according to the profits recorded in the books being audited by KPMG. Both agreements are illegal under new auditor independence rules.

Links

Accountants angered by SEC letters

SEC Analysis – SEC wins audit war

Related Articles

5 tips for SMEs to protect cash flow

Accounting Software 5 tips for SMEs to protect cash flow

5m Alia Shoaib, Reporter
Tyrie on Finance Bill 2017: ‘Making Tax Policy Better’

Consulting Tyrie on Finance Bill 2017: ‘Making Tax Policy Better’

11m Stephanie Wix, Writer
Managing partner Q&A - the year ahead: Richard Toone, CVR Global

Accounting Firms Managing partner Q&A - the year ahead: Richard Toone, CVR Global

12m Kevin Reed, Writer
Deloitte 'self-imposes exile' on government contracts to defuse PM row

Accounting Firms Deloitte 'self-imposes exile' on government contracts to defuse PM row

12m Kevin Reed, Writer
Managing partner Q&A - the year ahead: Julie Adams, Menzies

Accounting Firms Managing partner Q&A - the year ahead: Julie Adams, Menzies

12m Kevin Reed, Writer
Friday Afternoon Live: Deloitte's tech thing; PAC wants HMRC 'contingencies'; and Sports Direct

Business Regulation Friday Afternoon Live: Deloitte's tech thing; PAC wants HMRC 'contingencies'; and Sports Direct

1y Kevin Reed, Writer
Friday Afternoon Live: HMRC complaints rise; Deloitte scoops big audits; and corporate reporting woes

Audit Friday Afternoon Live: HMRC complaints rise; Deloitte scoops big audits; and corporate reporting woes

1y Kevin Reed, Writer
New head of equity capital markets for KPMG

Accounting Firms New head of equity capital markets for KPMG

1y Stephanie Wix, Writer