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Watchdog sinks teeth into KPMG
Another big-five accounting firm found itself under an unwelcome spotlight yesterday as US financial regulators began to investigate KPMG's auditing of Xerox.
The securities and exchange commission has widened its investigation into alleged accounting fraud at the copier maker during the late 1990s.
Xerox last week agreed to pay a $10m (£7m) fine, the largest ever, for inaccurate financial reporting and said it would restate up to $2bn of revenues, though it has not admitted wrongdoing.
George Ledwith, a spokesman for KPMG, confirmed that it was cooperating with the SEC but said it was "bewildered" by the inquiry.
"We cannot fathom the basis for this. We did the right thing, we raised the right questions and took a tough position. We did everything and more to ensure that investors were protected. That the SEC should consider this is just not comprehensible to us."
The SEC is also potentially pursuing a number of individual Xerox executives. The investigation centres on the booking of revenues from the office equipment Xerox leased on long-term deals. It allegedly accelerated accounting for income from the leases to shore up current revenue figures.
Xerox, which had used KPMG for decades, fired the firm six months ago.
Mr Ledwith said KPMG had pushed Xerox last year into conducting an independent investigation that led to a separate restatement of its numbers last June. KPMG had refused to sign the 2000 accounts until the investigation, which discovered a more minor "misapplication" of certain accounting rules.
That investigation by PricewaterhouseCoopers agreed that the lease accounting in question complied with US rules, Mr Ledwith said.
The inquiry is further evidence of the SEC baring its teeth to restore some credibility to itself and Wall Street after the Enron debacle. In the first two months of this year, it launched 49 investigations compared with 18 in the same period of 2001.