KPMG Audits of FNMA Probed: Report

The PCAOB investigation will look at whether KPMG breached auditing rules during its work for the mortgage-finance company.
Stephen TaubDecember 21, 2004

The Public Company Accounting Oversight Board (PCAOB) is investigating KPMG’s audit of the Federal National Mortgage Association (FNMA, or Fannie Mae), whose accounting practices have been questioned by the Securities and Exchange Commission and the Department of Justice, according to the Financial Times.

KPMG’s U.S. business has been Fannie Mae’s auditor since 1969, noted the FT, and signed off on the mortgage company’s financial statements from 2001 through mid-2004, the period that the SEC has been examining. Last month, however, KPMG refused to sign off on the company’s most recent quarterly financials.

Last week, SEC chief accountant Donald Nicolaisen called on Fannie Mae to restate its financials for the period in question to eliminate its use of hedge accounting. The restatement could amount to $9 billion.

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The PCAOB probe will look at whether KPMG breached auditing rules during its work for the company, according to the FT. The paper pointed out that a report issued in September by Fannie Mae’s federal regulator, the Office of Federal Housing Enterprise Oversight, highlighted how the company regarded KPMG’s accounting advice as definitive.

Neither the PCAOB nor KPMG offered comment to the paper. In an email to, the audit firm did note that it “recognize[s] the responsibility of the PCAOB to investigate audit matters such as these” and that the firm will cooperate fully and thoroughly. Citing the confidentiality of PCAOB inquiries, however, KPMG added that “we believe that it would be inappropriate to comment further.”

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