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KPMG TO BE INDICTED FOR TAX SHELTER MISDEEDS?

June 16, 2005

kpmg.jpgThe Wall Street Journal reports this morning that U.S. prosecutors are debating whether to indict the world's fourth largest CPA firm. The article says that KPMG's tax shelter promotions have put it in peril of following the Andersen path to oblivion:

Federal prosecutors and KPMG's lawyers are now locked in high-wire negotiations that could decide the fate of the firm, according to lawyers briefed on the case. Under unwritten Justice Department policy, companies facing possible criminal charges often are permitted to plead their case to higher-ups in the department. These officials are expected to take into account the strength of evidence in the case -- the culmination of a long-running investigation -- and any mitigating factors, as well as broader policy issues posed by the possible loss of the firm.

These "policy issues" are the existence of only four firms now in the business of auditing the largest enterprises. When Andersen was convicted of securities violations - charges recently thrown out by the Supreme Court - it lost its state licences and was forced out of business.

KPMG issued a statement that doesn't exactly proclaim innocence:

KPMG issued a statement early Thursday in which the firm said it "takes full responsibility for the unlawful conduct by former KPMG partners" during the period under investigation by the Justice Department. KPMG said it has taken actions "to ensure that this type of conduct does not occur again," including "firm-wide structural, cultural and governance reforms." The statement said KPMG employees "no longer provide the services in question."

We have no affection for KPMG, but it is mind-boggling that the government would even consider indicting another national firm after the Andersen debacle. By all means they should go after lawbreaking partners, but it's hard to see any point in killing one of the four big auditing firms -- especially seeing how they are all swamped now with the additional audit work triggered by Sarbanes-Oxley.

Link to WSJ Article: KPMG Faces Indictment Risk On Tax Shelters
(probably only works for WSJ online subscribers).

Link: KPMG statement

Link: NY Times Article "KPMG Says Tax Shelters Involved Wrongdoing"

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