GE Investors Urged to Dump KPMG as Auditor

Proxy advisor ISS recommends a vote against retaining KPMG, questioning its expertise amid an investigation of GE's accounting practices.
Matthew HellerApril 6, 2018

Proxy advisory firm Institutional Shareholder Services has urged General Electric shareholders to force a change in the company’s longtime auditor, questioning KPMG’s expertise amid an investigation of GE’s accounting practices.

GE has asked shareholders to endorse KPMG as its auditor for another year, which would extend a tenure that has so far lasted 109 years.

But in an unusual move, ISS said shareholders should vote against ratification at GE’s annual general meeting on April 25, citing accounting issues that have led to a U.S. Securities and Exchange Commission probe of the conglomerate.

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“In light of the apparent extent of GE’s previously-undisclosed liabilities and accounting issues accompanied by unqualified reports by long-time auditor KPMG, a vote against this proposal is considered warranted,” ISS recommended Thursday in a report.

ISS’s recommendation came two days after another proxy advisor, Glass Lewis, said GE shareholders should dump KPMG “in light of several ongoing concerns, including the recently announced SEC investigation into the company’s accounting practices, historic criticisms of the company’s relationship with KPMG, and KPMG’s extremely long tenure with the company.”

Glass Lewis also questioned the $142.9 million in fees that GE paid to KPMG last year, a 59% increase over the previous year and GE’s highest such fees this century.

GE has disclosed that the SEC is investigating the process that led to its booking of a $6.2 billion charge to fourth-quarter earnings as well as the company’s revenue recognition and controls for long-term service agreements. The charge was related to weakness in its North American Life & Health insurance portfolio.

In its proxy statement, the company said KPMG’s familiarity with its business helps to keep costs competitive and saves management’s time and resources. Bringing on a new auditor would require “a significant time commitment that could distract from management’s focus on financial reporting and internal controls,” GE said.

But ISS said concerns about costs and risks “need to be balanced by any board against the risk that a long-tenured auditor can become too close to a client, and the potential for a new auditor to uncover problems previously unidentified.”