Related Posts

Another KPMG Client Gets ID’d in a PCAOB Inspection Report

Back in March, Bloomberg’s Jonathan Weil called attention to a PCAOB report that was pretty harsh on KPMG-Bermuda’s audit of Alterra Capital Holdings. At the time he wrote the column, KPMG, the PCAOB and Alterra weren’t talking but then Alterra filed a 8-K admitting that they were the filer in question.

Today Weil lets the cat out of the bag again and yes it’s another KPMG client, Motorola:lockquote>Four years ago, inspectors for the auditing industry’s chief watchdog discovered that KPMG LLP had let Motorola Inc. record revenue during the third quarter of 2006 from a transaction with Qualcomm Inc. (QCOM), even though the final contract wasn’t signed until the early hours of the fourth quarter. That’s no small technicality. Without the deal, Motorola would have missed its third-quarter earnings target.

The regulator, the Public Company Accounting Oversight Board, later criticized KPMG for letting Motorola book the revenue when it did. Although KPMG had discussed the transaction’s timing with both Motorola and Qualcomm, the board said the firm “failed to obtain persuasive evidence of an arrangement for revenue-recognition purposes in the third quarter.” In other words, KPMG had no good reason to believe the deal shouldn’t have been recorded in the fourth quarter.

This may sound familiar to some of you that read PCAOB Chairman James Doty’s speech from last week when he said this:

PCAOB inspectors found at one large firm that an engagement team was aware that a significant contract was not signed until the early hours of the fourth quarter. Nevertheless, the audit partner allowed the company to book the transaction in the third quarter, which allowed the company to meet its earnings target. Although the firm discussed the timing of the transaction with the customer, it failed to obtain persuasive evidence of an arrangement for revenue recognition purposes in the third quarter. The company had been an audit client of the firm for close to 50 years.

Weil writes, “KPMG has been Motorola’s auditor since 1959; it had been Motorola’s auditor for 47 years at the time of the Qualcomm deal.” So, yeah. How did he piece this one together? Elementary, my dear auditors:

Motorola’s identity was disclosed in public records last month as part of a class-action shareholder lawsuit against the company in a federal district court in Chicago. The plaintiffs in the case, led by the Macomb County Employees’ Retirement System in Michigan, filed a transcript of a September 2010 deposition of a KPMG auditor, David Pratt, who testified that Issuer C was Motorola. KPMG isn’t a defendant in the lawsuit.

Pratt also identified the Motorola customers cited in the board’s inspection report. It’s his deposition that allows me to describe the report’s findings using real names.

The oversight board said a significant portion of the company’s earnings for the 2006 third quarter came from two licensing agreements that were recorded during the last three days of the quarter. One was the Qualcomm deal that wasn’t signed until the fourth quarter. The board also cited other deficiencies in KPMG’s review of Motorola’s accounting for the transactions.

As is their wont, KPMG isn’t talking. Motorola isn’t talking (but maybe there’s another 8-K in our future?). The PCAOB, bound by the law -which, some say, is debatable – isn’t talking. My guess is that Jon Weil will continue to talk…er…write columns shining the lights on shoddy audits until the Board breaks its silence.

Dirty Secrets Fester in 50-Year Relationships [Jonathan Weil/Bloomberg]

More KPMG Comp News: For Some In Chicago, Expectations Are More or Less Met

Some of you may have heard enough KPMG compensation news but judging by traffic patterns, most of you have not. And reports are still coming in, so it’d be a disservice to keep you in the dark.

The latest news out of Chicago:

This info is for Chicago, Audit. Most of us had our talks Thursday or Friday, however I hear that some are still continuing into Monday.

A2 to SA1, SP+ rating, received 10% raise and 2% bonus. Same level, EP rating, received 13% raise and 5% bonus. I am also finding out that SP vs. SP+ has no difference at all. This is based on a salary of $56,000 which was our original starting salary (also included a $5000 sign on bonus) as we received no raise last year. This is pretty much in line with what the now S2’s received over the past couple years, as they got 5% raise after their first year and 5% raise for being promoted to senior last year when everyone’s salaries “stayed flat” as my partner put it. What I would really like to know is what A1’s to A2’s received, as last year they had the same starting salary and bonus as what I began with, so they were essentially making more than A2’s for an entire year due to the bonus.

SA 2 to SA3, EP rating, 8% raise and 5% bonus. My managers also don’t seem to excited, but I obviously did not ask them what their actual numbers are.

I believe everyone on my team feels this is what they expected raise wise, but are rather disappointed with the bonuses. Some additional information, raise numbers are consistent across all business units within the office.

It’s also our understanding that convos are still going on in New York this week, so continue to keep us updated.