Attestation Update – A&A for CPAs

Technical stuff for CPAs providing attestation services

KPMG insider trading update

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Not much news the last few days.  Only two articles I wanted to highlight that discuss the allegations of insider trading against former KPMG partner Scott London:

Francine McKenna University of Chicago’s Capital Ideas blog – What’s wrong with insider trading?

Post starts by providing a recap of other Big 4 insider trading cases.

Then provides some guesses on what compensation levels may be in play:

Based on my sources, a partner at his level of responsibility—more than 50 audit partners and 500 staff reported to him—earns between $1.5 and $2 million dollars per year, at least.

Ms. McKenna raises a couple of questions for future discussion – should insider trading even be illegal and should there be prohibitions on auditors having financial interest in clients.

Update:  I don’t know where those ideas are going. She and some other writers are a long way ahead of me on those concepts.  I suppose with the technology we have today, we could drop the ban on insider trading in return for instantaneous disclosure of insider trades and maybe monthly disclosures of positions from all insiders.

One of the last comments highlights that the stock market didn’t have much reaction to the breaking news that KPMG hadn’t been independent for three years. I’ve seen two interpretations of that info. Will take some time to sort out what that means.

Michael Rapoport, Wall Street Journal, KPMG Plans Review Amid Trading Case

As you would expect, KPMG will review their rules to see if there is room for improvement. The article provides background on their policies:

KPMG’s code of conduct, which all KPMG employees must agree to comply with each year, says insider trading is “prohibited.” It adds that employees “should not disclose any confidential or private information to third parties” and should share it with other KPMG employees only on “a need-to-know basis.”

The code also warns employees against a variety of practices that could lead to leaks of confidential information, like discussing the information in public, using unencrypted “thumb drives” for client data, and leaving documents or data in unsecured places like unlocked cars and restaurant coat checks. Documents with confidential information are supposed to be placed in secure bins for shredding when they are disposed of.

Based on just a four sentence summary (which is all I know about their policies) that sounds good. Should make it quite obvious to anyone who can read that it would be very wrong to do the things alleged by the Department of Justice.

One tidbit of interest is the estimated amount of audit fees for the region for which Mr. London had PIC responsibilities:

Mr. London was the partner in charge of KPMG’s Pacific Southwest audit practice. Pacific Southwest clients pay KPMG a total of roughly $105 million a year for auditing and other services, according to a Wall Street Journal review of clients’ recent regulatory filings.

Written by Jim Ulvog

April 21, 2013, 14:16 pm at 2:16 pm

Posted in Audits

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