VideoThe KPMG chairman did say he did not support former SEC commissioner Arthur Levitt's 2000 proposals for auditor independence, which called for strict restrictions of non-audit services to audit clients, specifically technology systems design and integration, even though KPMG did not perform such services, and internal audit outsourcing, which represented just a few of the firm's clients. "As a matter of principle, KPMG believed judgments regarding the purchase of services are properly the responsibility of audit committees," the accounting firm's management said in a statement. "Finally, KPMG believed that the precedent of limiting the scope of auditor services, if carried too far, could impede improvements in the audit."
Andersen's Paper Trail?
When Andersen management admitted the firm destroyed documents related to Enron amid a government investigation, it wasn't the first time for the embattled auditor.
Or at least, that's the allegation in a story in USA Today. According to the article, which cites court records, Andersen destroyed documents when the SEC was investigating Sunbeam's restatement of earnings four years ago. The story alleges that several months after Andersen restated Sunbeam's earnings for 1996 and 1997 -- and after Sunbeam was sued by shareholders -- an Andersen partner said the auditor ordered its Fort Lauderdale employees to dispose of work papers or correspondence "that don't agree with the final documentation."
The blockbuster testimony reportedly came from Phillip Harlow, Andersen's lead partner on Sunbeam, in a deposition for a shareholder lawsuit.
Harlow said Spanish-speaking cleaning people threw away Sunbeam-related work papers stored in a trash bin with a "do not destroy" label in English at his firm's offices. Harlow also claims his original handwritten notes on the restatement were thrown away.
Short Takes
- New York State Comptroller Carl McCall on Thursday called on the New York Stock Exchange to prevent auditors from also working as consultants for the same firm. As comptroller, McCall may not have the clout to push through such a change. But bear in mind, McCall, a Democrat, is currently in the race for New York State governor.
- The San Jose Mercury News tracked the one-year stock performance of companies in the Mercury News Silicon Valley 150. The catch? The list was broken down by accounting firm. The results: Arthur Andersen: 22 companies, down by an average of 43.57 percent; Ernst & Young, 45 companies, down 34.48 percent; Deloitte & Touche, 15 companies, down 21.77 percent; KPMG, 17 companies, down 21.41 percent; and PricewaterhouseCoopers, 50 companies, down 5.87 percent. One company in the 150 -- Avant! -- didn't hire one of the Big Five.
- Managers at Greater Bay Bancorp, a financial services holding company with $7.9 billion in assets, stated that the company does not use Special Purpose Entities (SPEs) to get rid of problem assets. SPEs led to the downfall of Enron and forced PNC Financial Services Group Inc. to restate its 2001 financial results earlier in the week. That restatement is what likely triggered Greater Bay's statement yesterday. "Greater Bay Bancorp does not use those vehicles, or any other structures, to dispose of problem assets," said David Kalkbrenner, president and chief executive, in a statement.
Don't be surprised if a boat load of companies start issuing statements about SPEs. Also, as CFO.com noted on Thursday, FASB is looking into changing the so-called 3 percent rule. The rule stipulates that companies do not have to consolidate third-party vehicles if outside partners contribute more than three percent of the equity in the entity.
- The Council of Institutional Investors on Feb. 4 will call for a package of reforms to the U.S. auditing and corporate governance systems, aimed at preventing "future Enrons." The Council is an organization of 250 pension funds, state investment boards and investment-related firms responsible for nearly $2 trillion of pension assets.
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