By Sarah N. Lynch
WASHINGTON Jan 24 Accounting firm KPMG
will pay $8.2 million to settle civil charges that it
violated independence rules by providing non-auditing services
such as bookkeeping to three companies whose books it audited,
U.S. regulators said on Friday.
In the second major enforcement action against a "Big Four"
accounting firm this week, the Securities and Exchange
Commission also alleged that eight KPMG partners, including two
who worked on the audit of a client, owned stock in the firm.
The SEC's independence rules prohibit firms from providing
certain types of non-auditing services to audit clients, in an
effort to ensure auditors are objective watchdogs for investors.
Concerns about auditor independence have risen recently
among regulators as big accounting firms reassert themselves in
the consulting business. This reverses a trend away from
consulting that had begun with the 2002 Sarbanes-Oxley Act.
That law strengthened the independence rules in the wake of
accounting scandals at Enron, WorldCom and other corporations.
In Friday's case, KPMG settled with the SEC without
admitting or denying the charges. In a statement, the firm said
it is "fully committed to ensuring our independence with respect
to all of our audit clients."
"In the years since the events discussed in this SEC action,
KPMG has implemented internal changes that are designed to
ensure its ability to comply with restrictions on providing
non-audit services to SEC audit clients and/or their
affiliates," a spokesman added.
The SEC's case, filed as an administrative action, alleged
that KPMG's dealings with three of its public company audit
clients from 2007 to 2011 led to rule violations. The SEC did
not disclose the names of the companies, saying only that they
are publicly traded on the New York Stock Exchange.
But the market regulator cited a variety of improper
business relationships with the three companies, such as
offering non-audit services that included bookkeeping,
restructuring, corporate finance, and payroll services.
"Independence is the cornerstone of the auditing process,
and the SEC order reminds firms not to push the envelope," Jim
Doty, chairman of the Public Company Accounting Oversight Board,
said in a statement. The board, which polices auditors, helped
with the SEC investigation.
BIG WEEK FOR BIG FOUR
The KPMG case came during a rough week for the world's
biggest accounting firms, known as the "Big Four": KPMG,
PricewaterhouseCoopers, Deloitte and Ernst &
On Wednesday, an SEC administrative law judge ruled that the
Chinese units of those firms should be suspended from practicing
in the United States for six months for failing to turn over
audit work papers of U.S.-listed Chinese companies. [ID:
The judge's ruling in the China matter is expected to be
appealed and the issue could take years to be resolved.
In addition to the major enforcement news this week, the SEC
on Friday released a report on auditor independence that
highlights questionable practices that agency investigators
flagged at KPMG.
A copy of the document is at:
Auditor independence rules generally bar accounting firms
from offering consulting work to audit clients but leave the
door open to tax services.
TAX EXECS ON LOAN - SEC
In its report, the SEC found that KPMG provided tax services
to clients, but did so through hiring arrangements that could
compromise independence and violate SEC rules barring auditors
from acting as employees of an audit client.
These practices involved KPMG lending some of its tax
professionals to certain audit clients. In that capacity, these
professionals worked "under the direction and supervision" of
company management, the SEC said.
The SEC opted not to bring charges against KPMG in
connection with these issues.
However, the report and Friday's case are likely to help
spur more debate about the kinds of services that audit firms
should be allowed to provide.
At a conference in December, the accounting oversight
board's Doty and SEC Chief Accountant Paul Beswick both said
they had concerns about big accountants acquiring more
consulting businesses in recent years. Doty told reporters at
the time that he hoped to hold some public roundtables on the
subject this year.