KPMG Censured by SEC for Role in Xerox Accounting Scandal

Strategic Insights -

The Securities and Exchange Commission has censured KPMG, the accounting firm that audited Xerox Corporation's financial statements from 1997 to 2000, for helping Xerox executives distort those statements. The SEC said that KPMG issued audits stating that Xerox's reports were consistent with accounting rules when they were not, allowing the company to overstate its financial results by $1.5 billion over four years. KPMG, which settled the case, agreed to make extensive changes to its business practices to prevent future securities law violations.

Key Takeaways:

  • KPMG was censured by the Securities and Exchange Commission for helping Xerox executives distort financial statements from 1997 to 2000.
  • The SEC said that KPMG issued audits stating that Xerox's reports were consistent with accounting rules when they were not, allowing the company to overstate its financial results by $1.5 billion over four years.
  • KPMG agreed to pay almost $22.5 million in the settlement, including a $10 million civil penalty, repayment of the $9.8 million it earned by auditing Xerox's books during the period, and $2.7 million in interest.
  • KPMG also agreed to make extensive changes to its business practices to prevent future securities law violations, including a review and documentation of circumstances surrounding any reassignment or replacement of an engagement partner from an audit.
  • The firm must hire a consultant to examine its compliance with the changes two years after its chairman certifies that they have been put in place.
  • The five KPMG partners involved in the audits, including Michael A. Conway, Anthony P. Dolanski, Ronald A. Safran, Joseph T. Boyle, and Thomas Yoho, remain subject to the SEC's civil suit.

Statistics:

  • Xerox overstated its financial results by $1.5 billion over four years.
  • KPMG paid almost $22.5 million in the settlement.
  • The settlement includes a $10 million civil penalty, repayment of the $9.8 million KPMG earned by auditing Xerox's books during the period, and $2.7 million in interest.
  • The five KPMG partners involved in the audits remain subject to the SEC's civil suit.

Sources:

  • (Lehman, 2003-NOV-12) "SEC Files Actions Against Xerox Executives; Alleges that Company Misstated Earnings by $1.5 Billion" - www.seconlineopinions.com
  • (SEC, 2003-OCT-21) "SEC Charges Xerox with Accounting Fraud" - www.sec.gov
  • (AP, 2003-OCT-21) "Xerox to Settle SEC Charges" - www.google.com