Auditing

KPMG Drops New Century

The bankrupt subprime lender, which disclosed in March that it is the subject of investigations by the SEC and federal prosecutors, was subsequentl...
Stephen TaubMay 4, 2007

New Century Financial has disclosed that its outside auditor, KPMG, has resigned.

The subprime lender, now in Chapter 11 liquidation proceedings, asserted that there were no disagreements with KPMG.

New Century added that for 2004 and 2005, its financial statements, as well as audit reports on management’s assessment of the effectiveness of internal control over financial reporting, did not contain any adverse opinion or a disclaimer of opinion “and was not qualified or modified as to uncertainty, audit scope, or accounting principles.”

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The 2006 audit has not been completed, New Century pointed out.

In February, the company warned that its financial statements for the first three quarters of 2006 should be restated to correct errors in accounting and financial reporting of loan-repurchase losses. New Century began its own investigation into the issues that triggered the restatement, later expanding it, at the request of KPMG, to examine the valuation of residual interests in securitizations in 2006 and prior periods.

According to New Century, KPMG then told the company it would likely need to reassess its audit plan, and perform additional audit procedures, to obtain sufficient evidence concerning any conclusions reached by the investigating team. KPMG also advised the company there could be a material weakness in the company’s internal control over financial reporting.

New Century, which disclosed in March that it is the subject of investigations by the Securities and Exchange Commission and federal prosecutors, was subsequently delisted by the New York Stock Exchange. It is also a defendant in more than two dozen civil lawsuits, according to the Associated Press.

Earlier this week, the company also announced that it would lay off 2,000 employees after failing to receive any bids for its mortgage loan origination business.

Meanwhile, New Century has replaced a package of executive rewards that drew criticism from U.S. Trustee Kelly Beaudin Stapleton, according to the AP. The company now plans to award bonuses to 34 high-ranking executives, but the revised package has reportedly raised new questions about the justification for bankruptcy bonuses for some of these executives.