KPMG Settles with SEC for $22.5 Million in Largest Auditor Settlement

Strategic Insights -

Accounting firm KPMG has agreed to pay $22.5 million to settle charges with the Securities and Exchange Commission related to its involvement in Xerox's fraudulent financial reporting from 1997 to 2000. The payment includes $12.5 million in disgorgement of profits and interest, as well as a $10 million fine. This settlement marks the largest financial penalty to date for an auditor and averts a potentially embarrassing trial for KPMG next year.

Key Takeaways:

  • KPMG agreed to pay a total of $22.5 million to settle charges with the SEC, the largest settlement between an auditor and its regulator to date.
  • The payment includes $12.5 million in disgorgement of profits and interest, and a $10 million fine.
  • The settlement relates to KPMG's involvement in Xerox's fraudulent financial reporting from 1997 to 2000.
  • KPMG avoided a potentially embarrassing trial next year on charges that it willfully ignored warning signs of Xerox's accounting maneuvers.
  • The firm has agreed to implement reforms, including establishing an internal "whistle-blower" hotline and documenting reasons for removing engagement partners from audits.
  • Paul Berger, associate director of enforcement at the SEC, stated that KPMG failed to live up to its role as a gatekeeper in the Xerox case.
  • Lynn Turner, a former SEC chief accountant, noted that the Xerox fraud occurred during a time when auditors were swayed by consulting fees rather than auditing fees.
  • Xerox settled SEC charges for $10 million and a group of six former Xerox executives paid $22 million to settle charges against them.

Statistics:

  • $22.5 million: the total amount KPMG agreed to pay to settle charges with the SEC.
  • $10 million: the amount Xerox settled with the SEC for fraudulent financial reporting.
  • $22 million: the amount paid by a group of six former Xerox executives to settle charges against them.
  • 1997-2000: the period during which KPMG was involved in Xerox's fraudulent financial reporting.
  • 6: the number of former Xerox executives who paid $22 million to settle charges against them.

Sources:

  • [Greg Farrell, Bloomberg, Tuesday (no date provided)]
  • Securities and Exchange Commission (SEC) charges and settlements
  • Glass Lewis financial analysis firm
  • Xerox settlement with SEC
  • [former SEC chief accountant Lynn Turner]