| WASHINGTON, April 9
WASHINGTON, April 9 When audit firm KPMG
said late on Monday it had parted ways with two
corporate audit clients and a senior partner over information
leaks used in alleged insider trading, the partner's identity
was initially a mystery.
The name of Scott London, a KPMG veteran, emerged late on
Tuesday, but would likely have been known sooner if the panel
that regulates the U.S. audit industry had adopted a proposed
rule to require disclosure of audit engagement partners.
The Public Company Accounting Oversight Board, aiming to
shine more light on public company audits, proposed the rule in
October 2011, but has not enacted it.
"We don't know how many other audits of public companies
this person did," said Lynn Turner, former chief accountant for
the U.S. Securities and Exchange Commission. "It is a shame the
PCAOB has elected not to move forward with this significant
proposal," he said.
Nutritional products group Herbalife and footwear
maker Skechers revealed separately on Tuesday that KPMG
had quit as their auditor in connection with alleged leaks of
The FBI in Los Angeles is investigating, according to a
source familiar with the situation.
KPMG, which at first did not name the partner who had
resigned, later confirmed it was London.
London could not be reached for comment.
The U.S. Congress created the PCAOB under the 2002
Sarbanes-Oxley Act to police corporate auditors after accounting
blow-ups at companies such as former energy giant Enron Corp.
The panel has been exploring the idea of requiring the
identity of the so-called engagement partners, those who oversee
the audits, since 2009.
Some investor advocates as well as PCAOB Chairman Jim Doty
champion the idea. Last week, Doty said that identifying the
audit engagement partner "may help the investing public identify
and judge quality, leading to better auditing."
But the Big Four accounting firms, which includes KPMG, have
opposed the idea, convinced it would be of little use to
investors, could increase legal liability and deter auditors
from tackling high-risk audit jobs.
"We believe that disclosing the name of the engagement
partner ... may create a misunderstanding of the role and
responsibility of the firm in issuing the audit report," KPMG
wrote in a January 5, 2012 comment letter to the PCAOB.
A KPMG spokesman did not respond to a request for comment.
A PCAOB spokeswoman declined to comment on the KPMG matter,
but said the transparency proposal is expected to be either
adopted or re-proposed sometime between April and September.
If the PCAOB were to adopt the rule, it would still need
final SEC approval. SEC Commissioner Luis Aguilar, a Democrat,
said the PCAOB's proposal is "a common practice in other
countries" and "worthy of serious consideration by the PCAOB."
Jason Flemmons, a former deputy chief accountant in the
SEC's enforcement division, now a senior managing director at
FTI Consulting, said he was unconvinced investors would change
their behavior if they knew the identity of the auditor earlier.
The important thing, he said, would be that the SEC will
easily be able to get the information it needs.
"I imagine they are all over this," he said of the SEC.