KPMG headed the SEC off at the pass this week, announcing in advance of an expected civil fraud charge that the agency was planning to come after the firm in connection with its audits of Xerox Corp.

The Big Four firm blamed a "charged regulatory environment" for what it called the SEC's "inappropriate actions" against the firm, three current partners, and one former partner in connection with its audit of Xerox's financial statements from 1997-2000.

At the heart of the SEC's investigation is whether the auditor's relationship with its client became so enmeshed that it compromised the firm's financial watchdog role. In its complaint against Xerox last year, the SEC took the accounting firm to task for objecting to Xerox's accounting methods but allowing the practices anyway and signing off on the audits.

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