KPMG Woes

International accounting firm KPMG has admitted wrongdoing in questionable tax shelter development starting in the late 1990s (http://www.nytimes.com/2005/06/23/business/23kpmg.html) and is trying to limit its losses by working out a deal with the law firm of Milberg, Weiss, Bershad and Schulman. In response, a plantiff attorney's firm of Bernstein, Litowitz, Berger and Grossmann is seeking to enjoin (stop) a settlement until a trial can be scheduled. Yet to be determined are the penalties from the SEC (the PCAOB was not in place when the material was issued--thus presumably not able to act) for violations. The IRS have already found the shelters abusive and a report by Senate staffers indicated a $1.4 billion loss in revenues from the shelters.

To be fair, I should note that academics probably do not face the ethical pressures (certainly not this type of ethical pressure) that private accounting firms face and that I do not have a perfect ethical record myself. That said: [1] What was KPMG THINKING?, [2] Hopefully, accounting firms have earned from Enron, WorldCom, etc. and with the heavy hand of the IRS, PCAOB and SEC hanging over them we will not see large CPA firms repeat this behavior in the future. On the overall, I still believe that a sizable majority of CPAs are people of integrity (more on this in a future post) but this sort of behavior must be vigorously discouraged.