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KPMG to Pay $8.2 Million to Settle SEC Charges

by Ed Bannen

KPMG to Pay $8.2 Million to Settle SEC Charges: SEC Says Firm Broke Rules that Require Auditors to Be Independent from Clients

As an auditor and CPA, I understand the need for professional skepticism and independence in our work. The main principal of independence for auditors is we must be independent in fact AND appearance. While KPMG may have been completely independent in fact, by offering non-assurance services, they clouded the public’s (& the SEC’s) opinion of whether or not the firm’s opinion is truly independent or could be influenced by management. If the auditor’s opinion was impaired, the Company would have to get another audit and restate their Financials. A recent study found that investors have very little tolerance for Companies that have to restate their financials. A company’s stock price, on average, will drop 7% after a restatement and remain at lower levels for approximately 11 quarters.

Companies and auditors alike need to be careful of the perception that independence may be impaired. The costs of this mistake can be severe.

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