SEC fines KPMG £5m for independence violations
27 Jan 2014
27 Jan 2014
KPMG has agreed to pay $8.2m (£5m) to settle charges by the US Securities and Exchange Commission (SEC) that the firm violated the rules around auditor independence in its work for three US clients listed on the New York stock exchange.
The SEC said its investigation found that KPMG broke auditor independence rules at various times from 2007 to 2011 by providing prohibited non-audit services to affiliates of companies whose books they were auditing. In one case this involved restructuring, corporate finance, and expert services, and at a second client the firm provided accounting and payroll services.
In a separate instance, KPMG hired an individual who had recently retired from a senior position at an affiliate of an audit client. KPMG then loaned him back to that affiliate to do the same work he had done as an employee of that affiliate, which resulted in the professional acting as a manager, employee, and advocate for the audit client.
The regulator said some KPMG personnel also owned stock in companies or affiliates of companies that were KPMG audit clients, further violating auditor independence rules. The SEC said KPMG repeatedly represented in audit reports for these clients that it was 'independent'.
KPMG settled with the SEC without admitting or denying the charges. The firm agreed to pay $5,266,347 (£3.15m) in disgorgement of fees received from the three clients plus prejudgment interest of $1,185,002 (£750,000). KPMG additionally agreed to pay a penalty of $1,775,000 (£1m) and implement internal changes to educate firm personnel and monitor the firm's compliance with auditor independence requirements for non-audit services.
In a statement, KPMG said: '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.'
The SEC's investigation separately considered whether KPMG's independence was impaired by the firm's practice of loaning non-manager tax professionals to assist audit clients on site with tax compliance work performed under the direction and supervision of the clients' management. While it stopped short of bringing an enforcement action on this basis, the regulator warned that by their very nature, such 'loaned staff arrangements' appeared inconsistent with its regulations prohibiting auditors from acting as employees of their audit clients.