Tomahawk, WI 01/28/2014 (BasicsMedia) – The Securities and Exchange Commission reported an unordinary agreement on Jan 25 with KPMG LLP involving issues of violations of auditor independence rules. It is being said that the SEC even went out of line to cover the Big Four accounting firm and its over 100 years old audit client the General Electric Company (NYSE:GE).

KPMG LLP fined

The agreement was issued in two separate parts in which the first was an administrative order. According to this, the SEC has asked KPMG LLP to pay $8.2 million as fines and disgorgement. Reportedly, the firm has been providing some prohibited services, including bookkeeping, to three audit clients. The SEC also said that some of the partners of KPMG also possessed stock in one of the clients. This is again not allowed by the SEC.

What is most surprising in this auditor-independence case is that the SEC has not shared the names of the three clients to which KPMG has been providing the disallowed services. This is not the general procedure that the Commission has followed in some previous cases similar to this one. To name a few, in a 2010 settlement which alleged Thomas Flanagan, the former vice chairman at Deloitte & Touche LLP of trading shares of Berkshire Hathaway Inc among other audit clients of the company. In 2002 also, there was a case against KPMG which had then invested $25 million in one of the mutual funds at AIM Funds. KPMG was at the time the auditor for AIM.

The KPMG and GE story

In the second part of the settlement, SEC was seen to offer a more tricking report. The SEC reported the findings of KPMG’s practices in an investigation. The firm sends some of its own tax professionals working with it as staff to some of its audit clients. Although the SEC refrained from naming any such clients of KPMG but it is quite likely that GE is one of the companies that has been entertaining such practices.

In March 2011, Francine McKenna had written on her website re: The Auditors that KPMG was indulging in such practices with General Electric Company (NYSE:GE). In the website, where she writes about accounting and auditing, she also had mentioned that some of the KPMG employees which they had sent to GE to work as staff there were also given GE e-mail addresses.

What the report says

In fact, most part of the report talks about what genus of arrangements for the staff lending activity has been discovered at KPMG and what are the reasons they cannot be allowed. The employees at the audit firms are not allowed to join any of their clients as staff. The report states that the legal outcome of an auditor falling short of independence is that it disobeys and in turn causes its audit clients to disobey a number of provisions of the federal securities laws. The Commission explained that it needed to issue the report in order to clear any lack of understanding regarding its rules and regulations and their interpretation by the commission in this issue. Further, the commission wrote in the report that it has decided to not call upon any enforcement action regarding the loaned staff appointments. Too much concealment, as the Commission did not state any reasons to justify its decisions.

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