Tag: Auditors

Accounting News Roundup: Quasi-Exodus at H&R Block?; National Taxpayer Advocate Issues Report That Congress Won’t Read; SEC Might Want to Take a Closer Look at Amedisys | 07.08.10

H&R Block names Alan Bennett as CEO [AP]
This all came about since Russ Smyth resigned, made official by a two sentence 8-K filing, “On June 30, 2010, Russell P. Smyth provided H&R Block, Inc. (the “Company”) with notice of his resignation as President and Chief Executive Officer of the Company, and as a director of the Company. The effective date of Mr. Smyth’s resignation from these positions is August 29, 2010, unless the Board of Directors selects an earlier date.”

It seems like there’s a quasi-exodus in the C-Suite at HRB as General Counsned on Friday and the company is still on the hunt for a CFO after Becky Shulman left in April.

Yahoo CFO Aims to End Buy-High, Sell-Low Record on Deals [Bloomberg]
Tim Morse told Bloomberg that the company has been doing things completely bassackwards, “You’ve seen our track record on M&A with buying really high and selling pretty low,” Morse said in an interview. “We’ve got to be careful.”

Some examples of doing things exactly wrong include, “Yahoo, the second-biggest U.S. search engine, agreed to sell its HotJobs website for $225 million in February after paying about $436 million for it in 2002. In January, Yahoo sold Zimbra, an e-mail and collaboration unit, netting $100 million. Yahoo bought it in 2007 for $350 million.”

Auditors could face grillings from analysts [Accountancy Age]
“Steve Maslin, chair of the partnership oversight board at Grant Thornton, envisages an expanded audit role which may involve greater face-to-face time with stakeholders, including question and answer sessions at annual general meetings.

‘Many investors believe there is valuable information that gets discussed by the auditors with management and audit committees to which investors do not have access – and I think they are right,’ he said.”


Legg Mason CFO resigns [Baltimore Sun]
Get your resumé in now.

FEI Announces 2010 Hall of Fame Inductees [FEI Financial Reporting Blog]
Come on down! “FEI’s 2010 Hall of Fame inductees: Karl M. von der Heyden, former Vice Chairman of the Board of Directors and Chief Financial Officer of PepsiCo, Inc., and Ulyesse J. LeGrange, retired Senior Vice President and Chief Financial Officer of ExxonMobil Corporation’s U.S. Oil and Gas Operations.”

National Taxpayer Advocate Submits Mid-Year Report to Congress [IRS]
Nina Olson’s mid-year report to Congress has plenty to wade through so that means none of the members will likely read it. Fortunately the IRS narrowed the three biggies (Taxpayer Services, New Business and Tax-Exempt Organization Reporting Requirements, IRS Collection Practices) into a much more consumable version.

Open Letter to the [SEC]: Investigate Troubling Issues at Amedisys Missed by Wall Street Journal [White Collar Fraud]
In Sam Antar’s latest WTFU letter to the SEC, he details some issues at Amedisys which weren’t covered in the Journal‘s report from back in April. Since we are into the whole brevity thing, we won’t get into the number crunching here but things look fishy. Plus there’s this:

On September 3, 2009, Amedisys President and COO Larry Graham and Alice Ann Schwartz, its chief information officer, suddenly resigned from the company. Amedisys provided no reason for their resignations and simply said that the two execs “are leaving the company to pursue other interests.”

In my experience, sudden, unexpected executive departures are often a sign of problems beneath the surface. And while it could be entirely coincidental, the trends at Amedisys appear to be consistent with my experience.

But Sam doesn’t believe in coincidences.

KPMG Has Gotten Tired of KV Pharmaceutical’s Financial Reporting Side Effects

Last week we ran a post courtesy of Sheryl Nash at CFOZone that discussed the tough 2010 that KV Pharmaceutical was having. Well, it’s getting worse. KPMG, not completely adverse to risk,ps and has dropped KVP like a sack of spuds.

In an 8-K rammed through just before quitting time yesterday, “On June 25, 2010, KPMG LLP (“KPMG”) notified K-V Pharmaceutical Company (the “Registrant” or the “Company”) that it had resigned from its engagement as the Registrant’s principal accountant. KPMG’s resignation was not recommended or approved by the Audit Committee of the Registrant’s Board of Directors.”

What was the problem, you ask? Where do we start? There’s a lot in this 8-K so we’ve bolded the good parts for you:

KPMG’s report on the consolidated financial statements of the Registrant and subsidiaries as of and for the year ended March 31, 2009 contained a separate paragraph stating that “As discussed in Note 3 to the consolidated financial statements, the Company has suspended the shipment of all products manufactured by the Company and must comply with a consent decree with the FDA before approved products can be reintroduced to the market. Significant negative impacts on operating results and cash flows from these actions including the potential inability of the Company to raise capital; suspension of manufacturing; significant uncertainties related to litigation and governmental inquiries; and debt covenant violations raise substantial doubt about the Company’s ability to continue as a going concern.”

The audit report of KPMG on the effectiveness of internal control over financial reporting as of March 31, 2009 did not contain any adverse opinion or disclaimer of opinion, nor was it qualified or modified as to uncertainty, audit scope, or accounting principles, except that KPMG’s report indicates that the Registrant did not maintain effective internal control over financial reporting as of March 31, 2009 because of the effect of material weaknesses on the achievement of the objectives of the control criteria and contains an explanatory paragraph that states “Material weaknesses have been identified and included in management’s assessment in the areas of entity-level controls (control awareness, personnel, identification and addressing risks, monitoring of controls, remediation of deficiencies and communication of information), financial statement preparation and review procedures (manual journal entries, account reconciliations, spreadsheets, customer and supplier agreements, stock-based compensation, Medicaid rebates and income taxes) and the application of accounting principles (inventories, property and equipment, employee compensation, reserves for sales allowances and financing transactions).

We’ll interject here with…why didn’t they just admit, “We have internal controls in place but they suck. Every last one of the controls is ineffective and we’re really not sure they’re being performed anyway. In fact, we don’t even employee people with accounting degrees. We have a weekend COSO crash course to get temps up to speed.” ?

Back to the filing:

As of the date of their resignation, KPMG had not completed the audit of the consolidated financial statements and the effectiveness of the internal controls over financial reporting of the Registrant as of and for the year ended March 31, 2010. KPMG had informed the Audit Committee prior to the date of their resignation that upon completion of their audit of the consolidated financial statements as of and for the year ended March 31, 2010 they expected their audit report would contain a separate paragraph expressing substantial doubt about the Registrant’s ability to continue as a going concern and their report on internal controls over financial reporting would indicate that the Registrant did not maintain effective internal control over financial reporting as of March 31, 2010 because of the effect of material weaknesses reported as of March 31, 2009 that had not been remediated.

We’d continue but it’s probably not necessary.

What’s the Next Move in This PCAOB Situation?

Jonathan Weil over at Bloomberg has a new column up today and he is less enthusiastic about the Supreme Court decision in FEF v. PCAOB than say, everyone else.

JW is mostly wondering why we should keep having an “independent” PCAOB inside the SEC since the board members will now be at the mercy of the towing the political line inside the Commission, “While the court

Today in Auditor Musical Chairs: KPMG and Deloitte Both Get the Boot

Evergreen Energy of Denver dismissed Deloitte effective June 23rd according to the company’s 8-K filing. Hein & Associates, a local Denver firm, will take it from here.

It stands to reason that Evergreen didn’t appreciate the going concern opinions that Deloitte gave the company for its December 31, 2009 and December 31, 2008 financial statements but in cordial SEC filing fashion, there are no parting shots from the company.


Evergreen’s press release indicates that this was simply an opportunity to throw some action to another firm (most likely with lower fees), “With the sale of certain Buckeye assets and our exit from the coal mining industry, Evergreen Energy has transitioned into a green technology company. This is an ideal time to switch to a Denver-based regional accounting firm with substantial public company expertise in the clean technology and software industries that can more cost effectively meet our needs.”

Deloitte’s letter to the SEC is abruptly admits that everything is cool rather than flat out saying, “you’ll be sorry you ever ditched us, you losers.”

Similarly, Measurement Specialties, Inc. showed KPMG the door for Ernst & Young. The company says everything was hunky-dory between the two although there was a small matter of the internal controls around a significant joint venture of which the company had no control. Oh, and the effectiveness of internal controls of some recent acquisitions also couldn’t be determined. But it was cool and the company said, “it was in the best interests of the Company to change its independent registered public accounting firm.”

KPMG has NFI what that means saying in their letter, “we are not in a position to agree or disagree with Measurement Specialties, Inc.’s statements relating to the reason for changing principal accountants.”

We wish everyone nothing but happiness.

Accounting News Roundup: Auditors ‘Portray Worrying Lack of Skepticism’; Are Tax Strategies Patentable?; Method Man Pleads Guilty, Cuts Check for NYC Tax Evasion | 06.29.10

FSA accuse auditors of failing to question management bias [Accountancy Age]
The Financial Services Authority has decided that it was about time it called out a few people, “Auditors have become yes men who don’t adequately question management bias according to concerns raised by the UK’s chief financial regulators. The Financial Services Authority (FSA) and the Financial Reporting Council today released a scathing discussion paper into the profession following concerns raised in the wake of the financial crisis. Among its concerns is that auditors ‘portrays a worrying lack of skepticism’ when scrutinising potential management bias.”

Not onlef=”http://www.accountancyage.com/accountancyage/news/2265630/fsa-audit-report-regulator”>FSA wants new enforcement powers including the ability to ” fine, censure or disqualify audit firms.” The FSA also wants to meet with auditors several times a year, rather than just once, as well as direct access to audit committees.

Alex to Become Hurricane as Swells Reach Gulf Spill [Bloomberg]
“Tropical Storm Alex, the first named system of the Atlantic hurricane season, strengthened today, forcing the evacuation of rigs in the Gulf of Mexico and pushing swells toward the worst U.S. oil spill.

The storm, packing maximum sustained winds of 70 miles (110 kilometers) per hour, was 460 miles southeast of Brownsville, Texas, before dawn today, moving north-northwest at 8 mph, the U.S. National Hurricane Center said in an advisory. The circulating winds were near reaching hurricane status of 74 mph.”

New York state may tax out-of-state hedge fund execs [Reuters]
Desperate idea of the day from the brain trust in Albany, “Recession-hit New York could raise an extra $50 million a year by collecting income taxes from people who work for hedge funds in the state but live elsewhere, according to a legislative plan to raise revenue…A spokesman for Democratic Assembly Speaker Sheldon Silver said by telephone on Monday that it means hedge fund managers would be treated the same way as other commuters.”


Aprill: The Impact of Bilski on Tax Strategy Patents [TaxProf Blog]
In non-PCAOB SCOTUS news, the decision in Bilski v. Kappos addressing “Whether a ‘process’ must be tied to a particular machine or apparatus, or transform a particular article into a different state or thing (‘machine-or-transformation’ test), to be eligible for patenting….” was examined by Ellen P. Aprill of Loyola-L.A. regarding the impact on tax strategy patents:

“Bilski is at best a mixed bag for those who think tax strategies should be patentable. It gives little help and does allow business method patents, albeit somewhat begrudgingly. It demonstrates that for those who believe that tax strategies should not be patented, legislation is needed.”

Method Man pleads guilty to NYC tax-evasion charge [AP]
“Hip-hop star Method Man pleaded guilty to a tax-evasion charge Monday, writing a check on the spot for the final $40,000 restitution payment after owing about $106,000.” What, no cash?

U.S. Court to Hear Janus Appeal In Securities Case [Reuters]
“The lawsuit, brought on behalf of those who bought Janus stock from mid-2000 through early September 2003, alleged that the prospectuses of several of Janus funds created the misleading impression that the company would adopt measures to curb market timing, when in fact secret arrangements with several hedge funds permitted such transactions, to the detriment of long-term investors.”

Accounting News Roundup: G-20 to ‘Stabilize’ Debt by 2016; Auditors May Be Forced into Whistleblower Role on Banks; Yes, Taxes Are Historically Low | 06.28.10

G-20 Agrees to Cut Debt [WSJ]
“The wealthiest of the Group of 20 countries said they would halve their government deficits by the year 2013 and ‘stabilize’ their debt loads by 2016, a signal to international markets and domestic political audiences they are taking seriously the need to wean themselves from stimulus spending.”

Once you catch your breath from laughing, the President also cited the tax code specifically and his threatening to put some (i.e. Congress) in a tight spot:

“They might have to make deeper cuts in deficits to comply with its pledge. A White House statement said that government debt in the fiscal year15, would be at an “acceptable level.” President Obama said that next year he would present “very difficult choices” to the country in an effort to meet deficit goals.

The president cited his disappointment with the U.S. tax code. ‘Next year, when I start presenting some very difficult choices to the country, I hope some of these folks who are hollering about deficits and debt step up, ’cause I’m calling their bluff,’ Mr. Obama said.”

Bank auditors eyed for whistleblower role [FT]
A paper from the UK’s Financial Services Authority puts forth the discussion of requiring auditors to work more closely with regulators on irregularities found during the bank’s audit engagement.

“Experts say bank executives are nervous about the prospect of increased bilateral discussions between regulators and auditors. Auditors have been fearful the paper could thrust the profession into a regulatory spotlight it has so far avoided.”

Koss Fraud: We didn’t bother to look at the endorsements on our own checks, but Grant Thornton should have! [Fraud Files Blog]
Fraud sage Tracy Coenen presents her latest view on the Koss fraud mish-mash and how Koss management has managed to make themselves “look like absolute morons.”


BP Loses $22 Billion in Legacy of Share Buybacks [Bloomberg]
“The sum represents the hole after the 52 percent plunge in BP shares since the Deepwater Horizon exploded and sank, resulting in the worst oil spill in U.S. history. BP bought back more than $37 billion of its stock in a bid to return money to investors between 2005 and 2008. Those shares are now worth $15 billion, excluding dividends.”

Martin Ginsburg, Noted Tax Lawyer and Husband of Justice Ginsburg, R.I.P. [ATL]
Mr Ginsburg was a tax law professor at Georgetown for many years and was known for his great sense of humor, as evidenced by his faculty bio, noted by our sister site, Above the Law:

Professor Ginsburg is co-author, with Jack S. Levin of Chicago, of Mergers, Acquisitions, and Buyouts, a semi-annually updated treatise which addresses tax and other aspects of this exciting subject. The portions of the treatise written by Professor Ginsburg are, he is certain, easily identified and quite superb.

Open Letter to the Securities and Exchange Commission Part 9: Overstock.com’s Excuses Simply Don’t Add Up [White Collar Fraud]
It appears Sam Antar has caught Overstock.com in another disclosure snafu but this time it isn’t really clear whether the company gave the wrong excuse, lied to the SEC or simply doesn’t know what they’re doing, “Overstock.com’s 2008 10-K report claimed that a reportable “gain contingency” existed as of November 7, 2008. However, the company contradicted itself and claimed to the SEC reviewers that reportable reportable ‘gain contingency’ did not exist on November 7, 2008.

If Overstock.com’s 10-K disclosure is true, the company’s explanation to the SEC Division of Corporation Finance can’t be true. Likewise, if Overstock.com’s explanation to the SEC Division of Corporation Finance is true, the company’s 2008 10-K disclosure can’t be true.”

Accounts bodies revise workplan [FT]
Convergence 2.0.

Today’s taxes aren’t too bad [Don’t Mess with Taxes/Kay Bell]
Kay Bell provides some perspective on tax rates over the last century. The following graphic should help clear up any confusion.


Koss Sues Grant Thornton, Blames Firm’s Assignment of Newbie Auditors

Well! You might have thought that Koss would just handle this Sue Sachdeva situation like gentlemen headphonesmiths but you would have thought wrong!

Koss is suing S-squared and Grant Thornton for their respective roles in the alleged embezzlement of $31 million from the Brew Town company.

While it sounds like , that won’t protect her or Chipman & Co. from the wrath of Koss. But one thing is for sure, despite the lawsuits and whatnot, this is not the company’s fault. Just ask Koss’ attorney Michael Avenatti, “I’m confident the company will be exonerated.”


Why? Because Grant Thornton threw a few young associates on the engagement, that’s why!

Koss hired one of the best accounting firms in the world, Grant Thornton, and should have been able to rely on Thornton’s audits to uncover wrongdoing, Avenatti said. The suit against the auditing firm says auditors assigned to Koss were not properly trained.

The lawsuit lists hundreds of checks that Sachdeva ordered drawn on company accounts to pay for her personal expenses. She disguised the recipients — upscale retailers such as Neiman Marcus, Saks Fifth Avenue and Marshall Fields — by using just the initials. But the suit says Grant Thornton could have ascertained the true identity of the recipients by inspecting the reverse side of the checks, which showed the full name.

Forget the fact that the CEO was also vice chairman, chief operating officer, president and chief financial officer. Oh, and he sat on the audit committee at another company. Apparently Koss wanted GT partners auditing those cash accounts rather than implement anything that even closely resembles an internal control system.

Grant Thornton, meanwhile, is still sticking to the boilerplate statement as reported in the Milwaukee Journal-Sentinel, “We remain confident that we have met all of our professional obligations and that our work complied with professional standards.”

Sigh. Of course no one wants to be responsible, so let’s decide for them. Let’s get a show of hands:

It’s worth mentioning that the lawsuit comes just a few short days before Koss’ tardy restated financials are due. If the company doesn’t cough them up, the Nasdaq will banish them like they’ve got lice.

Koss sues former executive, auditor over alleged embezzlement [Milwaukee Journal-Sentinel]

FERF Survey: Audit Fees Down, Big 4 Still Dominate Public Company Filers

This story is republished from CFOZone, where you’ll find news, analysis and professional networking tools for finance executives.

It looks like audit fees are stabilizing.

The 150 publicly-held companies responding to a recent survey paid an average of $4.8 million in audit fees in 2009, down 2.4 percent from the total shelled out by these respondents the prior fiscal year.

The 197 privately-held companies responding to the survey paid an average of $291,200, roughly even with the prior year.

Drilling further down, the survey found that total audit fees for 83 large accelerated filers-those with market capitalizations over $700 million–averaged $7.8 million, 3.6 percent less than what they paid the prior year. What’s more, this average of $7.8 million was possibly skewed to the high side this year due to the total audit fees reported by the 19 respondents from companies with more than $25 billion in annual revenues.


On the other hand, the average audit fees paid by the 22 non-accelerated filers were $579,900, 3.3 percent more than what they paid in the prior year.

These are some of the highlights of a newly-released annual report from Financial Executives Research Foundation (FERF), the research affiliate of Financial Executives International. It stresses that the averages reported in this year’s Audit Fee Survey are not comparable to those reported in the 2009 survey because this year’s respondents are not necessarily the same as last year’s respondents. In fact, FEI stresses that this year’s average was skewed slightly higher due to representation from more companies with revenues of $25 billion or more.

The survey also found that the total number of audit hours averaged 21,458 for all public companies, and-not surprisingly–was directly proportional to both the size of the company and to the number of legal entities comprising the company. Of the 19 respondents from companies with more than $25 billion in annual revenues, the total hours averaged 108,571.

The average hourly audit rate was $218 for all public companies–$186 for nonaccelerated filers and $220 for the large accelerated filers. Surprisingly, the survey found that the lowest hourly rate ($110) and the highest hourly rate ($400) were both reported by large accelerated filers. It said the $110 rate was reported by a large multi-national consumer goods distributor and the $400 rate was reported by a large multi-national financial services firm.

Other interesting findings:

• 88 percent of public company respondents used Big 4 audit firms compared to 36 percent of private companies.

• After the Big 4, Grant Thornton was mentioned by four respondents and BDO and McGladrey were both mentioned once.

• 21 of the 197 private companies plan to switch auditors, compared to only 7 of the 150 public company respondents. Service issues and fees were key reasons for both groups.

• Just 16 of the 150 public companies indicated that their auditors broke out the cost of the Section 404 attestation.

Crowe Horwath Audit Partner Uses “The Tax Department Is on Another Floor” Defense

Auditors and audit firms have few options when it comes to defense strategy when they are sued for missing a fraud. If fraud occurs and an auditor partner claims to know everything that one should about his/her client, then the partner was probably in on it. That’s a little tricky.

However, if fraud occurs and the partner claims that he/she had no knowledge of any unscrupulous activity, then that means the audit sage is really just a two-bit glad-hander that couldn’t tell a debit from a credit.


And that appears to be the case of William Brizendine, a Crowe Horwath partner, who is claiming that he didn’t know about the relationship between executives of Peoples Bank of Northern Kentucky and Bill Erpenbeck who were engaged in scheme that artificially inflated the purchase price of model homes. Brizendine claims that he couldn’t possibly known that his client was involved with such a shifty character A) the bank’s execs didn’t tell him until after the shit hit the fan and B) this Erpenbeck character’s name only came up on the tax returns and why on Earth as an audit partner, would he look at those?

The bank’s lead attorney, Ron Parry, tried to establish that Brizendine was in a unique position to expose the fraud before it became large enough to take down the bank. Parry said auditors had to be aware of the business relationship because they also did the taxes of the company Finnan and Menne created with Erpenbeck.

[…]

Brizendine claimed he didn’t know of the relationship because he was just involved in the auditing of the bank and that JAMS tax returns were done by the tax department on another floor of the company’s offices.

Parry was able to show, however, that JAMS tax documents were sometimes sent directly to Brizendine. Brizendine claimed he never looked at those documents since his department didn’t prepare taxes.

Brizendine also admitted on the stand that he was the person who brought in the contract to do JAMS taxes.

Accounting News Roundup: BP Weighing Options on Dividend; Will the “New Wealth Taxes” Affect You?; Medifast Keeps Things Vague | 06.14.10

BP unlikely to cancel dividend, but mulls several ideas: source [Reuters]
They may defer it, pay it in shares or “pay into a ring-fenced account until the oil spill liabilities become clearer.” All of which will please absolutely no one.

Auditors to reveal bank talks under new plans [FT]
Proposals by the ICAEW would require auditors to disclose their private discussions with bank audit committees afteshowed that “the value of bank audits had shown investors especially were dissatisfied by the audit report. The internal process involved was perceived as helping to keep bank executives in check, but investors felt the report was only a box-ticking exercise.”

The Big 4 have historically resisted these types of proposals, arguing that it will expose them to additional legal liability.

Suggestions cited include assurance on the “front half of annual reports,” as well as an audit of the banks’ summaries of risks. The ICAEW said it was aware that this would add to the auditors’ workload.


Vantis trading suspension follows difficult financial period [Accountancy Age]
The court-appointed liquidator for Allen Stanford’s bank, Vantis, has had trading of its shares suspended by the AIM after the company was unable to obtain any funds for their services related to the Stanford case, among other financial difficulties.

Ernst & Young had issued a going concern opinion for the company back in February, warning that continued lack of cash flow would have to be remediated quickly for any possibility for the continuation of the business.

How the New Wealth Taxes Will Hit You [WSJ]
Are you one of those “rich” people? That is, do you have an adjusted gross income of $200,000 or more ($250,000 for joint filers)? If so, you’ll probably want to know that two new tax levies will come your way in 2013 as a result of the new healthcare legislation – a 0.9% levy on wages and a new 3.8% tax on investment income.

The 0.9% tax is on any wages over $200k/$250k. For example, if you are single and made $300,000, your additional tax would be $900.

Similarly, the investment income tax would tax any investment income in excess of the $200k/$250k threshold and the 3.8% tax would be applied. What’s investment income you ask?

Interest, except municipal-bond interest; dividends; rents; royalties; and capital gains on the sales of financial instruments like stocks and bonds. The taxable portion of insurance annuity payouts also counts, unless it is from a company pension. So do gains from financial trading, as well as passive income from rents and businesses you don’t participate in. All are subject to the 3.8% tax on amounts above the $250,000 or $200,000 threshold, as described above.

Income that is not considered investment income include: distributions from IRAs, pensions and Social Security, annuities that are part of a retirement plan, life-insurance proceeds, muni-bond interest, veterans’ benefits, and income from a business you participate in, such as a S Corporation or partnership.

KPMG considering move to 1801 K [Washington Businsess Journal (subscription required)]
KPMG might move their Washington, DC office location to 1801 K St. NW from 2001 M St. NW according to “real estate sources.” KPMG’s spokesman said that the firm is continuing to “examine all of our options.” The situation is fluid.

Open Letter to the [SEC]: Why You Must Review Medifast’s Revenue Accounting Disclosures [White Collar Fraud]
Sam Antar would like to put the SEC on notice that Medifast seems to be less than transparent when it comes to its disclosures, “it seems that Medifast is recognizing revenue upon shipment and not delivery. As a minimum, Medifast, like Overstock.com, should be required to expand and clarify its disclosures to avoid confusing investors.”

PFF Bancorp Creditors Want to Probe KPMG So They Can Determine if They Can Sue KPMG

In anything is better than the shit BP has on its hands news, Reuters reports that creditors of PFF Bancorp Inc are requesting permission from a U.S. Bankruptcy Court in Delaware to snoop around “information in KPMG’s possession” to find out what the firm knew about PFF’s over-leveraged, under-capitalized, risk-loving ways.


The company’s committee of unsecured creditors wrote in their request that “Information in KPMG’s possession may support potential claims against third parties and against KPMG itself, if, for example, it becomes apparent that KPMG knew or should have known at an early date of any overly-aggressive or inadequately-controlled loan practices of the (company).”

So in other words, PFF would like to – pretty please – sue someone’s ass and they’d like to confirm whether or not KPMG will be a good candidate for said ass suing. So assuming the bankruptcy court gives them the thumbs-up, PFF will send in the hounds to find out what’s what. And they’ve covered themselves nicely by using the wonderfully subjective “knew or should have known” so KPMG’s only option will be to invoke the “we were duped” excuse, which isn’t such a flattering option.

KPMG didn’t respond to Reuters’ request for comment or our email but we’re guessing they’re less than enthused about sharing what is in their audit workpapers. Not necessarily because the documentation will have a smoking gun but more so because they might discover that the partner on the engagement has a bad habit of doodling and that’s just embarrassing.

PFF Bancorp creditors seek probe of auditor KPMG [Reuters]

It’s Ridiculous to Think That Enterprise Financial Dismissed KPMG Because of the Restatements

KPMG has been kicked to the curb by Enterprise Financial according to an 8-K that was filed on Friday by the company. The ubiquitous claim of “no disagreements with [insert firm]” was there along with a mention of a material weakness that was related to the restatements issued for both 2008 and 2007 but that couldn’t possibly have anything to do with the dismissal of the auditors:

In connection with the identification of the loan participation accounting error described in Item 7, Management Discussion & Analysis and in Item 8, Note 2 of the consolidated financial statements and elsewhere in the Form 10K dated March 16, 2010, the Company also determined that a material weakness in its internal controls over financial reporting existed during the periods affected by the error, including as of December 31, 2008. The Company’s management concluded that the material weakness was the Company’s lack of a formal process to periodically review existing contracts and agreements with continuing accounting significance. To remediate this material weakness, during the fourth quarter of 2009 the Company implemented a formal process to review all contracts and agreements with continuing accounting significance on an annual basis. As a result of the review conducted in the fourth quarter, management did not identify any other errors in its previous accounting for such contracts or agreements. Management believes that this new process has remediated the material weakness in the Company’s internal control over financial reporting.

So in other words, “Yeah, maybe we should have been looking at these contracts but we weren’t and so some material misstatements slid through. We’ve slapped some duct tape on it and it’ll be fine from here on it. End of story.”

The esteemed pleasure of auditing Enterprise now belongs to Deloitte who has now snagged three clients from KPMG this year (by our count) – picking up Jefferies and Select Comfort back in March.

Enterprise Bank parent dismisses KPMG [St. Louis Business Journal]