What moves people to give out insider trading tips?
That’s the allegation which the SEC has levied at Scott London, the former KPMG partner embroiled in a scandal over audits of companies including Herbalife and Skechers.
Here’s the full 17-page civil complaint (also alleging that Bryan Shaw used London’s info to trade shares): Read more
An administrator of MF Global’s UK arm has warned some customers of the failed futures broker might not see all their money returned. Richard Heis, joint special administrator at KPMG, told the FT that his firm had recovered some £594m or 82 per cent of customer funds held in so-called segregated accounts, where money is supposed to be held at arms length from the business. But he said the total pay-out would be dependent on resolving valuations of outstanding claims and costs being racked up by KPMG. These costs already totalled nearly £20m. Mr Heis said there was a possibility that some customers would not see all their money returned. He said there were “more people claiming segregated status than there is segregated money”. Unlike counterparts around the world, such as the US and Canada, the UK has yet to return any assets to clients, leading to warnings that the delay was damaging London’s reputation as a financial centre. Read more
An unofficial panel of experts cleared global accounting groups KPMG and Ernst & Young of any responsibility for a $1.7bn accounting fraud at Olympus, reports Reuters, though the role of the firms remained under official review. The scandal had raised questions over the role of the two audit firms, which signed off on the accounts of the maker of medical equipment and cameras before the 13-year fraud finally surfaced in October, but the panel of lawyers set up by Olympus effectively said the losses would have been too well-concealed for external auditors to find. However their report on Tuesday said that internal auditors were to blame, saying five of them, former and current, were responsible for 8.4bn yen ($109m) in damages. Read more
The European arms of the four biggest accountants are being threatened with a break-up under sweeping European Commission reforms to be unveiled on Wednesday, the FT says. Michel Barnier, the EU internal market commissioner, wants to split the profession’s “Big Four” – PwC, Deloitte, Ernst & Young and KPMG – into separate audit and consulting arms in Europe as part of a package of measures designed to improve the vetting of accounts. A plan to force those groups to share work with their smaller rivals through “joint audits” has been dropped, but Mr Barnier won support for rules compelling companies to rotate auditors at least every six years. The Commission is also proposing stricter limits on “non-audit” work than are currently in force in the US, but the proposals could be altered before they become law, the newspaper adds. Read more
The business model of the Big Four accounting firms is under attack from the European Commission, which is pushing for tough rules that would force the firms to abandon their consultancy businesses and share audit work with smaller rivals. The FT says a draft regulation it viewed would force companies with balance sheets greater than €1bn to hire two auditors, including at least one firm outside the Big Four of Deloitte, PwC, Ernst & Young, and KPMG. It would also prohibit auditors from working for the same company for more than nine years. aims to transform the accounting sector in the wake of the financial crisis and restore “trust” in financial reporting. It has the backing of Michel Barnier, internal market commissioner. Read more
The business model of the Big Four accounting firms is under attack from the European Commission, which is pushing for tough rules that would force the firms to abandon their consultancy businesses and share audit work with smaller rivals. A draft regulation, seen by the Financial Times, aims to transform the accounting sector in the wake of the financial crisis and restore “trust” in financial reporting. It has the backing of Michel Barnier, internal market commissioner, whose officials have decided the audit world is in the grip of an oligopoly. Under the plans, which are to be unveiled in November, companies with balance sheets greater than €1bn would be forced to hire two auditors to conduct a “joint audit” of their books, including at least one firm outside the Big Four of Deloitte, PwC, Ernst & Young, and KPMG. Read more
Luminar, the ailing UK nightclub operator, has dropped its auditor a week before debt-covenant tests it is widely expected to fail. The FT reports the company told shareholders on Tuesday that PwC had resigned after the board decided “a fresh audit relationship would benefit the Luminar group moving forward”. Luminar will hire KPMG instead. PwC, which has worked with Luminar since 2003, declined to comment. The move comes a week before tests on its banking covenants set for next Wednesday. Lloyds Banking Group, Barclays and Royal Bank of Scotland, Luminar’s lenders, agreed to waive the tests in May to give time to “determine the appropriate basis for a longer term restructuring of the group’s debt arrangements in light of continued challenging trading conditions”, the company said at the time. Read more
The UK’s Office of Fair Trading has warned that competition concerns over the UK audit market are serious enough to warrant potential regulatory intervention after a decade of monitoring, reports the FT. But the competition watchdog said UK regulators might require international support – an admission that boosts the significance of a parallel investigation of the audit market by the European Commission. PwC, KPMG, Deloitte and Ernst & Young do the vast majority of auditing for top UK-listed companies, vetting the accounts of all but one of the FTSE 100. The concentration is only slightly less pronounced among mid-cap companies. The OFT has been eyeing the Big Four firms since 2002 and was recently asked to assess the market formally by the government and a House of Lords committee. Read more
The “Further further readings” post usually runs in the late afternoon US time, but in this case you can file it under “we forgot to hit publish”. Doh! Or consider it a Tokyo special. Either way, sorry about this.
For the commute home, where you always pass your Irish stress tests,
Read more
Auditing firm KPMG is expected to announce on Tuesday the acquisition of EquaTerra, a privately-owned US outsourcing advisory firm, as it seeks to expand its presence in the fast-growing global market, reports the WSJ. Terms of the deal were not disclosed. EquaTerra consults on IT services and other business processes such as supply chain logistics. The purchase will help KPMG better address its clients’ need for building more efficient businesses in the backdrop of huge transformations in technology, said Mark Goodburn, vice chairman and head of advisory for KPMG , the US-based member firm. Read more
New York prosecutors accused Ernst & Young of helping Lehman Brothers engage in a “massive accounting fraud” by approving a move that temporarily reduced the brokerage firm’s debt and gave investors an impression it was in a stronger financial condition, reports the FT. The civil lawsuit, filed in a New York state court, alleges the auditing firm “substantially” helped Lehman mislead investors from 2001 until the brokerage firm’s 2008 bankruptcy filing by signing off on the accounting sleight of hand. The strongly worded lawsuit goes further than accusing Ernst & Young of misconduct. It alleges Lehman engaged in a “massive accounting fraud” by using the accounting treatment, known as Repo 105. In a busy day for the New York Attorney General, Deutsche Bank agreed to pay a $554m fine as part of a non-prosecution agreement related to tax shelters marketed by KPMG, reports the Wall Street Journal. Read more
Bejesus. The Madoff trustee complaint against HSBC makes for good reading.
For background: the court-appointed trustee for Madoff’s failed investment business is suing HSBC for $9bn — claiming, as in the JP Morgan case, that the bank turned a blind eye to “red flags” surrounding the business. They even, and we kid you not, allegedly described Bernie’s legendary ponzi performance as nothing less than supernatural. Read more
UK regulators are investigating KPMG over its audits for BAE Systems in relation to a long-running corruption probe into the European defence contractor, reports the FT. The UK’s Accountancy and Actuarial Discipline Board said on Monday it was examining a decade’s worth of KPMG’s audits – from 1997 to 2007 – in light of commissions paid by BAE to third-party agents and outside companies in arms deals. The probe threatens to reopen a damaging chapter in BAE’s history, eight months after the company paid nearly $450m to settle a transatlantic bribery investigation by the US Department of Justice and UK’s Serious Fraud Office. Read more
Whether you’re an increasingly impecunious chief executive at a mid-ranked UK company, or one of the City’s increasingly flush “AVPs” (assistance vice-presidents), some – interestingly timed – reports on Monday are telling us a few things.
First, Reuters reports that the average pay of junior executives in London’s financial sector rose sharply over the summer. Read more
Uncertainty has emerged over Mears’ agreement to acquire contracts from Connaught, its collapsed rival, as the UK social housing maintenance group tries to finalise the deal, reports the FT. Mears investors had expected to be told on Monday that the company had acquired about eight of the former FTSE250 company’s contracts after Bob Holt, executive chairman, said on Friday he had sealed the deal. But it seemed on Sunday night that a Monday morning announcement was unlikely although it was unclear whether KPMG, which was appointed administrator of Connaught last week, would do so. Read more
Morgan Sindall, the UK construction group, has acquired the bulk of Connaught’s social housing maintenance operations in a move that still leaves the majority of Connaught’s 10,000 jobs and other businesses in doubt, reports the FT. The deal between the buyer and KPMG, Connaught’s administrator, was sealed late Thursday night and an announcement was due on Friday, said people close to the deal, noting that Lovell, Morgan Sindall’s social housing arm, had gained the business for £20m to £40m. Read more
Connaught has called in administrators after the stricken UK property services group failed to persuade lenders, led by RBS, to back a fresh business plan, dashing the hopes of private investors who thought they had bought the stock on the cheap, reports the FT. Retail broking houses – on behalf of clients – bought most of the FTSE250 company’s shares in recent months as professional investors sold after heavy losses. The remaining shareholders could be wiped out, after Connaught said on Tuesday it was appointing administrators from KPMG. The BBC adds that rival companies such as Mears are set to step in to take over some of Connaught’s contracts. Read more
The Big Four accountants’ dominance of the audit industry is facing mounting international scrutiny after the UK’s House of Lords launched a review into the firms’ role in the financial crisis, the FT reports. Read more
Accounting-geeks (like us) might remember that at the start of last year there was much discussion as to whether Britain’s big four auditing firms — PwC, Deloitte, Ernst & Young, and KPMG — would be able to sign off the 2008 end-of-year accounts of the country’s beleaguered banks.
At the time banks’ assets were difficult or impossible to value, their shares were volatile, and no one really knew what was to become of the financial institutions. Read more
Some auditors have been signing off on the financial statements of big clients before finishing their work, an industry watchdog has revealed in a critical assessment of the way checks on company accounts are carried out, the FT reports. Auditors were still not sceptical when reviewing management assertions on company accounts, the report by the Audit Inspection Unit of the UK’s Financial Reporting Council found. City AM says the unit also criticised the big four accounting firms for the “disappointing” quality of their audit work. See FT Alphaville for more. Read more
KPMG and PwC have considered entering the credit rating business, in a move that would pitch two top accountancy firms against the current top three agencies, Moody’s, S&P and Fitch, reports the FT. However, John Griffith Jones, chairman of KPMG in the UK and co-chair in Europe, told the FT the firm was “passively considering” the move, not actively debating it. Richard Sexton, UK head of assurance at PwC, meanwhile said PWC was continually looking for areas to grow its business from core areas. Read more
Here’s where we currently stand in the overly consolidated world of international accountancy.
Firms ranked by revenues: Read more
Goldshield Group understated its profits by several million pounds over a number of years, according to HgCapital, the buy-out group that backed a £179m management buy-out of the drugmaker last year. HgCapital appointed has auditor KPMG and law firm Linklaters to investigate the alleged understatement of profits by Goldshield, which it took private after a bidding battle with Ajit Patel, Goldshield’s former CEO. Read more
Maltby Capital Limited, the vehicle Guy Hands used to acquire EMI for £4.2bn shortly before the credit markets collapsed a couple of years ago, has filed results and financial statements for the year to March 31, 2009.
And it does not make for comfortable reading. Read more
Bankers, lawyers and accountants are eyeing opportunities to secure their piece of what could amount to more than $100m in fees from the fallout in wrangling over Dubai World’s $22bn debts. The group’s first all-creditor meeting held on Dec 21 in Dubai was the first step in what is likely to be the biggest restructuring of 2010. KPMG and Allen & Overy have secured the most recent appointments, as financial and legal advisers respectively to a six-bank steering committee that will lead talks on behalf of other bank creditors. Read more
Citi has never been a paragon of accounting standards, so it’s with little surprise that we read the latest work from the oft-controversial Bloomberg columnist, Jonathan Weil.
Weil has been a vehement critic of Citi, in particular on the subject of the bank’s deferred tax credits — a debate which helped kick off something of a revolution in bank capital. Read more
Police have raided the offices of KPMG and PricewaterhouseCoopers in Reykjavik, seizing documents and computer data as part of a probe into alleged criminal activity at three collapsed Icelandic banks, reports the Daily Telegraph. The targets of the raids were the firms’ banking clients Kaupthing, Glitnir and Landsbanki, but the move is nevertheless likely to cause embarrassment for two of the “big four” accountancy names. Read more
Older entries
1The end of QE?
2Man walks into a gold bar. Au!
3The persistent supply-side constraints in US housing
4Bird, plane, Abe
5Bove vs Bloomberg, redux
Show more6A glorious episode in the history of the Revenue
7Stress you next year
8Breaking up is hard to do - Rio Tinto edition
9The short arm of the SEC
10The (early) Lunch Wrap
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