After agreeing to pay some $195 million in a settlement to roughly 280 investors in its tax shelters, Big Four firm KPMG is under fire again, this time from a critical inspection report from the Public Company Accounting Oversight Board, which identified a number of deficiencies in some 18 of 76 audits that it examined.
Although the identities of KPMG audit clients in the 29-page report remained anonymous, the oversight board revealed that deficiencies resulted in one client having to restate, while PCAOB auditors uncovered problems in other audits with leases, worker's compensation accruals, and lack of documentation to support an audit opinion.
In a statement, KPMG chairman Timothy Flynn said, "KPMG is committed to the goal of continuous improvement in audit quality. We appreciate the constructive dialogue and consider it an important element in the process of improving our system of quality controls."
The report, conducted between June 2004 and October 2004, indicated that PCAOB inspectors conducted interviews at 11 of the firm's offices to get a perspective of top-down communication and "tone at the top."
KPMG's was the first in a series of reports the board will release regarding its inspections of the Big Four firms.
Separately, the tax shelter investor settlement reached in federal court, and which awaits a judge's approval, covers purchasers of four types of tax shelters -- Blips, Flip, Opis and SOS -- who received opinions or were advised by KPMG or received opinions from the law firm of Sidley Austin from Jan. 1, 1996, through Sept. 14, 2005.
Both KPMG and Sidley Austin -- which will shoulder about 20 percent of the settlement -- are also required to pay $30 million in legal fees to the plaintiff's lawyers, Milberg Weiss Bershad & Schulman LLP.
A KPMG representative said that the settlement was "consistent with KPMG's goal of putting past tax shelter matters behind us."
