SEC's Chief Accountant Objects to KPMG's Recent Statement to Clients

KPMG LLP has removed a contested statement that appeared in a summary of findings from the firm's first-ever inspection by the Public Company Accounting Oversight Board (PCAOB).

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The top accountant of the Securities and Exchange Commission, Donald Nicolaisen, questioned a statement in the Aug. 28 summary sent to KPMG clients that said "the SEC would not challenge our independence” if certain conditions were met regarding accounting for contingent-fee arrangements, Dow Jones reported.

Under SEC rules, auditors are barred from entering such fee arrangements with audit clients out of concern they create mutual financial interests. The SEC banned auditors from charging contingent fees on tax work done for audit clients in 2000. Earlier this year the SEC clarified its opposition to the fees and rejected the American Institute of Certified Public Accountants' more expansive interpretation of the rules.

In a letter to KPMG Chief Executive Eugene O'Kelly, which was posted on the SEC website Monday, Nicolaisen said, “I made no such statement. Furthermore, the commission has not made a decision regarding its position on these matters in respect to auditing firms."

KPMG responded, “We made the statement referenced in the chief accountant's letter in good faith. It was a sentence contained in a six-page summary of the PCAOB inspection results that was provided by KPMG. It was never our intent to attribute the statement to the chief accountant. As a result, we have eliminated the passage in question and will be discussing that change with any clients who may be affected.”

Nicolaisen commended KPMG for publicizing the results of the PCAOB inspections, which are not public and are designed to provide stronger oversight of corporate accounting practices.

KPMG said in its statement, “KPMG believes the PCAOB's inspection process will be an important part of the effort to enhance the integrity and transparency of financial reporting by public companies - and improve the quality of audits conducted by public accountants. We're grateful for Mr. Nicolaisen's recognition in his letter of KPMG's efforts to provide added transparency to the PCAOB inspection process.”

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