While the general investing public is asking “where were the auditors?” in regards to the […]
Just as Washington is finally passing a bill that will reduce unnecessary risk-taking by financial institutions, here comes this commercial from KPMG in the UK doing the opposite. KPMG parties like it was 2005 and sub-prime was a bad cut of steaks. The commercial celebrates risk-taking in a manner that only a BP executive could rationalize deepwater offshore drilling.
Almost everything is wrong with this commercial:
Its heroes, a man and a woman, presumably KPMG employees, are living in a risky world. Risk is all around them, from the moment they get up. But don’t worry. These two nitwits know how to engage in risk management. Mostly in jingle and parkour, in fact.
Wikipedia tells us that Parkour “is where participants jump, vault, and climb over obstacles in a fluid manner. Skills such as jumping and climbing, or the more specific parkour moves are employed. The object of parkour is to get from one place to another using only the human body and the objects in the environment. The obstacles can be anything in one’s environment but parkour is often seen practiced in urban areas because of the many suitable public structures available such as buildings and rails.”
The two heroes run, jump, flip over and take maniacal risks along the way to the office. Along the way the tag line, “Turn Risk Into Advantage”, is reinforced by embedded messages, in case we did not get the main theme”: “Know Risk, Know Reward”, “Do You Have The Risk Appetite For Success?” “Always Be Ready For The Unexpected.”
I actually like the “Turn Risk Into Advantage.” It is clever, memorable, and summarizes nicely what corporations are seeking in risk management advice. Yet it is completely overshadowed by the flip execution and the manner that suggests that KPMG employees, and by extension KPMG, take risks haphazardly.
Besides being out of context and lacking a narrative, the commercial ends on a cheesy note: upon arriving into the KPMG office and performing obligatory back flips, the couple race up the stairs, looks over the rail, look at each other, smile, and decide not to jump and take the elevator instead. This is a sensible move, perhaps the first one in this commercial.
Risk management is an essential practice, and perhaps as this advertising suggests, more in need than ever. Yet, it is not clear to me why the issue cannot be addressed heads on and intelligently. The irrelevant “packaging” simply detracts from the appeal of the practice.
Avi Dan is President & CEO of Avidan Strategies, a New York based consultancy specialized in advising professional service companies on marketing and business development. Mr. Dan was previously a board member with two leading advertising agencies and managed another.
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.
Norman Marks is an “evangelist for GRC” (that’s governance, risk management and compliance for those of you that can’t do a Google search). He is a CPA, a chartered accountant and vice president, governance, risk, and compliance for SAP’s BusinessObjects division, and has been a chief audit executive of major global corporations for more than 15 years.
If you read a few Norman’s posts you’ll understand his passion for internal audit, GRC and helping companies find solutions for these issues. Simply stated, Norman is one of the good guys and is doing more than his fair share to help take on the challenges in these areas.
Why should accountants read your blog?
My blog is for anybody with an interest in monitoring events and sharing views around governance, risk management, and internal audit. Accountants are more than people who maintain the books: they are businessmen and women interested in advancing and protecting their organization. That makes them natural leaders in each of these areas.
What are your three must-read accounting blogs and one must-read non-accounting blog?
I read the occasional business blog (aren’t all the better so-called accounting blogs really business blogs) when the topics are interesting. Certainly reTheAuditors by Francine McKenna is interesting. But I really enjoy Mike Jacka (an auditor/humorist) and Richard Chambers, President and CEO of the IIA.
A good accounting blogger is…
Not somebody who writes about (yawn) accounting, but about the accountant’s role in business and advancing the success of his or her organization.
The biggest issue facing accountants today is…
Will the inevitable court cases around Lehman and the principle of ‘fair presentation’ change the nature of external auditing, so that compliance with the rules of US GAAP is no longer sufficient?
Best accounting firm we’ve never heard of (and why they’re great)…
The firm that John Cleese worked in Monty Python (accounting is not boring). Seriously, though, the best accounting firm is the one that puts the interests of its customers first and foremost, consistently performs quality work, exercises fine judgment, provides sound and valuable advice, and sets fees that are reasonable by eliminating unnecessary work and recognizing that fees should not rise faster than wage inflation. You have never heard of them, because I have yet to see them. Sorry, sad, but true.