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Deal Makes SEC Fret

Blame the Internet for a new chapter in the tense story of free enterprise versus auditor independence.
John P. Mello Jr., CFO Magazine
October 1, 1999

It's a new chapter in the tense story of free enterprise versus auditor independence. And you can blame the Internet.

Despite reservations raised by the Securities and Exchange Commission, Big Five accounting firm KPMG and networking kingpin Cisco Systems have announced they intend to complete a controversial deal that would permit Cisco to invest $1.05 billion in KPMG's consulting business and own 19.9 percent of it. The accounting firm would set up six technology centers staffed by 4,000 KPMG consultants who would deliver Internet-based data and voice and video consulting services to Cisco's clients.

What's the problem? KPMG doesn't audit Cisco, after all. But what about all the other companies that have a close relationship with Cisco and may also become KPMG clients? The KPMG-Cisco deal will create a division of the accounting firm, called KPMG Consulting. Plans are on the table to spin off the consulting business next spring with an IPO. A showdown looms, for the SEC has reportedly told KPMG that outside ownership of the new entity while the company maintains an audit practice could violate auditing rules.




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