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KPMG insider trading update – 4-22-13

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A few articles of interest today on the alleged insider trading mess at KPMG.

I’ll start by giving yet one more illustration that we should to be very careful with Facebook comments.

You may read them again.

In the Los Angeles Times.

And at Going Concern.

Two articles discuss whether the partner actually stepped back from the engagement during the required five-year cooling-off time.

Final article shows he was lead partner on three more audits.

Be careful of what you say on Facebook

Going Concern picked up on some comments in a Seattle Times article that ran on April 20 (Missteps marked KPMG insider-trading scandal) which is actually a reprint of the Los Angeles Times article which ran on April 11 (In KPMG insider trading case, crime and blunders alleged).

The discussion is of comments made by Mr. Scott London on the Facebook page of his golf buddy’s wife. The families were close friends.  Now even the joking comments made four years agao are subject for examination.

Going Concern’s discussion follows their headline – Scott London Won’t Be Making Flirty Comments on the Facebook Page of Bryan Shaw’s Wife Anytime Soon.

The LA Times article says (I’ll drop the wive’s names – they aren’t part of the story – look up the original article if you are interested):

London frequently commented on the Facebook page of Shaw’s wife, … In 2009, (Shaw’s wife) posted a photo of her with Scott London’s wife, .., and a third friend at a restaurant and captioned it “The 3 amigas.” The girls’ night out picture elicited a teasing response from Scott London, who commented, “You guys look a little out of focus. Is the world blurry to you?”

That same month, underneath a photo showing the Shaws smiling on vacation, London wrote, “Who is that hotty in the sunglasses.” (She) responded, “Your buddy Bryan of course!”

Moral of the story?

Keep in mind that anything you write in a social media platform, anything, could one day appear in the Los Angeles Times. Write your comments accordingly.

Cooling-off time

Francine McKenna explores KPMG’s Insider Trader: What The Auditor, and Skechers, Don’t Want To Talk About. She is trying to understand the sequence of the ‘cooling-off’ time for Mr. London on the Sketchers audit.

PCAOB rules requires the lead partner to cycle off the audit for 5 years after being the lead partner for 5 years. Best picture she can paint is the cooling-off time ended after he started passing tips to his golf buddy.

She’s also tried to get an understanding of his role during the cooling-off time (was he an advisory partner with consulting roles or have a concurring or quality review role?) along with the exact timing of the cooling-off, but hasn’t been able to get a clear explanation.

Article has soon good background for those of us outside the Big 4 world on how partners and senior managers are rotated between positions.

She also repeats her suggestion from two years ago for disclosure of the full range of partner’s involvement with public companies: internal audit, tax, etc. If that were combined with disclosing the concurring partner and actual/standby quality control review partner, there would be a good way to see if a partner had a really good cooling-off time or just stepped back a little bit. Seems to me it is the difference between showing someone actually took a break or stayed involved.

Ms. McKenna expands her discussion in her blog post at re: The Auditors – Scott London Subverted Sarbanes-Oxley: Big Four Mock Audit Partner Rotation.

Stepping away from an engagement for five years after that length of time as lead partner seems to make sense to me. Staying involved with the consulting, or tax work, or concurring/quality control partner would seem to seriously undermine that concept. Hmm. I think that’s the point of the two articles.

Lead auditor on three more engagements

Financial Times has an article pursing the disclosure of lead partner’s name – Regulator urges end to auditor anonymity. It just repeats the standard argument for disclosure of lead partner’s name.

Of far more interest to me are these two tidbits:

However, a person close to the situation told the FT he had been lead auditor for three more as-yet unnamed companies in California at the time he was fired, two of which were entirely private while the third had publicly traded debt but no listed stock.

Two privately held companies and one with public debt. I’ve not seen that comment anywhere else.

Also, this isn’t the first time tripping over independence rules:

The same person said routine checks at KPMG in 2012 had revealed a minor breach by Mr London of internal rules governing the timely disclosure of securities trading.

The article says Mr. London’s attorney confirmed he was auditor on three more clients. The attorney..

also confirmed the minor rule breach, saying it related to investments that were not on KPMG’s restricted stock list.

Written by Jim Ulvog

April 22, 2013, 15:48 pm at 3:48 pm

Posted in Audits

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