Statement From KPMG Chairman & CEO John Veihmeyer [KPMG]
KPMG LLP Chairman and CEO John Veihmeyer issued the following statement upon reviewing the criminal complaint filed today against former partner Scott London. London was charged today in the Central District of California for conspiring to commit securities fraud through insider trading. “I was appalled to learn of the additional details about Scott London’s extraordinary breach of fiduciary duties to our clients, KPMG and the capital markets. We unequivocally condemn his actions, and deeply regret the impact that his violations of trust and the law have had on our clients and our people. KPMG will be bringing legal actions against London in the near future. “As a result of his unlawful activities, it was clear that our independence had been impaired with respect to the two companies for which he served as lead partner, Herbalife and Skechers. Due to this impairment, we were professionally obligated to take the regrettable action to resign as the independent auditor for these two companies and withdraw our previously issued audit reports. The sole reason for these steps was the actions of our former partner and we have no reason to believe that their financial statements are materially misstated.”
All audit firms have risk groups that review new business, including the quality of the company to be audited, and that decide that some prospective clients are not worth the risks. It will be interesting to see if any of the other major firms conclude that the risks are acceptable, particularly given that Herbalife’s 2012 audit fee was under $4 million, which is not a large sum to a major firm. If Herbalife turns to a second-tier audit firm, it will be embarrassing to the company.
Bad Week for KPMG Could've Been Worse [WSJ]
No clients have said they dismissed KPMG since the news of the Scott London case broke earlier this week. Two clients in the Southern California area that Mr. London oversaw—Reliance Steel & Aluminum Co. and medical products company Volcano Corp. —filed proxy statements Thursday indicating they continue to recommend that shareholders approve KPMG as their auditor.
Scott London’s Other Crime: Tax Fraud [Fraud Files]
Something to look forward to!
Senate Releases Tax Reform Option Paper on Business Investment and Innovation [TaxProf]
People have been busy.
Significant decline in IRS staff leads to fewer audits [JofA]
The Transactional Records Access Clearinghouse (TRAC), reports that the IRS plans to expend 18% fewer staff hours auditing large businesses with assets of more than $10 million in fiscal year 2013 (which ends Sept. 30) than it did in FY 2011. These lower numbers do not take into account the effects of budget cuts that resulted from the sequester. TRAC, a data research organization at Syracuse University, based the report on information it has received after filing a Freedom of Information Act (FOIA) suit against the IRS.