New York (March 19, 2004) -- Fourteen states have called for KPMG to be disqualified as WorldCom's auditor.
In a brief filed this week in bankruptcy court in the Southern District of New York, 14 states, led by Massachusetts Commissioner of Revenue Alan LeBovidge, asked the court to disqualify the Big Four firm from serving as WorldCom's accountant and requested that KPMG give up $146 million in fees it received or has applied for from the company, which filed the largest bankruptcy in history in July 2002.
The states charged that KPMG advised WorldCom (which has changed its name to MCI) on a tax strategy that helped the company evade taxes by claiming $24 billion in improper royalty expense deductions. In the brief, the states argue that since WorldCom has a potential claim against KPMG stemming from the royalty plan, KPMG has a financial interest in the company's affairs.
"In this case, KPMG's conflict of interest is open and notorious," the brief said. It continued, "As a part of auditing the debtors' restatement of its financials, KPMG would have to evaluate the soundness of its own tax minimizing strategies and would have its own financial interest at stake."
A spokesman for the accounting firm said, "Our corporate tax work for WorldCom was performed appropriately, in accordance with professional standards and all rules and regulations, and we firmly stand behind it. We're confident that KPMG remains 'disinterested,' as required for all of the company's professional advisors, in its role as WorldCom's external auditor. Any allegation to the contrary is groundless."
MCI restated its earnings from 2000 and 2001 earlier this month, but still has to restate its results from 2003. The company plans to emerge from bankruptcy in April.
-- WebCPA staff
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