KPMG Won’t Sign Off on Fannie Mae

Mortgage giant reveals that its methodology for performing certain calculations for 2001 and 2002 ''was not consistent with GAAP.''
Stephen TaubNovember 17, 2004

Mortgage giant Fannie Mae, which is currently embroiled in an accounting scandal, missed its second deadline for filing its quarterly financials after its outside auditor, KPMG LLP, would not sign off on the report.

The nation’s largest mortgage company also stated that if it does not qualify for hedge accounting for all quarters going back to January 1, 2001, it would report a $9 billion loss on its derivative transactions. In addition, Fannie Mae revealed — for the first time, according to the Associated Press — that its methodology for performing certain calculations for 2001 and 2002 “was not consistent with GAAP.”

In September, the Office of Federal Housing Enterprise Oversight (OFHEO) raised questions about the mortgage company’s practices related to two accounting standards. Last month, according to the AP, Fannie Mae chief executive officer Franklin Raines and chief financial officer Timothy Howard testified at congressional hearings that regulators’ allegations of accounting improprieties and management misdeeds were a matter of interpreting complex rules.

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In a statement this week, Fannie Mae stated that it continues to believe that its accounting policies and its applications of the two standards are consistent with generally accepted accounting principles, and that it has submitted letters to the Securities and Exchange Commission to that effect. The company added that its “independent auditor concurred with Fannie Mae’s accounting interpretations as set forth in the letters.”

On November 5, according to the company, Fannie Mae and KPMG presented the company’s views to the SEC’s Office of the Chief Accountant (OCA). “Completion of the review by Fannie Mae’s independent auditor is subject to resolution of the issues before OCA,” stated the company. KPMG’s signoff also depends on its completion of “certain other procedures, including its evaluation of results that are not yet available of the investigation of certain matters in the OFHEO report being conducted by independent counsel on behalf of the board of directors,” the company added.