Round and round and round…

Nearly four years ago, I grabbed a horse and hopped on the Big4 Auditor Carousel. Over the years, there were nuggets like Ventas and the Scott London/KPMG fiasco, but mostly it was run of the mill auditor changes. KPMG out, PwC in. EY resigns, and Deloitte takes their place. Where am I going with this? I’m jumping off the Carousel; no more Big4 auditor change posts. It’s time to move on.

I learned a lot, had some fun, and met many wonderful people in the process. Thank you for your support.

All the best,

John

Advertisements

Taking A Week Off

Though I’m sure companies have switched Big4 auditors this week, I’m not spending any time thinking about it.  I’m too busy thinking about…nothing, and loving every minute of it.  A week in Hawaii will do that to you.

Tune in again next week for a super-sized version of the Big4 Auditor Carousel.

Mahalo!

KPMG Disgraced by Audit Partner – Herbalife and Skechers Impacted

By now, you probably already know that KPMG resigned as auditor of Herbalife and Skechers this morning.  Yes, it’s bad. Bad for KPMG, bad for their employees, bad for their clients, bad for investors and shareholders in these companies. The FBI is involved, a very senior partner has been fired, and many are left wondering what just happened.  I’m going to look at each company’s response.

KPMG’s press release was subdued. Likely on the advice of legal counsel, they didn’t provide many details, stating that the audit partner in charge of the Los Angeles office, “was involved in providing non-public client information to a third party, who then used that information in stock trades involving several West Coast companies.” (You can read the entire release here.) This is followed by the usual “commitment to quality” statements firms always make when something embarrassing happens. This goes way beyond embarrassing, though, and ventures into the realm of the illegal. Given the material they had to work with, this is about the best KPMG could do.

Herbalife  filed an 8-K (which you can read here) and press releases with a bit different focus. It acknowledges the KPMG resignation and cites, “alleged unlawful activities” by a now former partner. It emphasizes the resignation was due solely to the impairment of KPMG’s independence and had nothing to do with the company’s, “financial statements, its accounting practices, the integrity of the Company’s management or for any other reason.” Herbalife then goes into a dreaded 4.02 Non-Reliance paragraph stating the 2012, 2011, and 2010 financial statements, “should no longer be relied upon as a result of KPMG’s lack of independence.” Ouch, this means many months, and possibly a year or longer, for another audit firm to come in and re-audit the periods in question.  Herbalife has not engaged a new audit firm, but is looking. Get your bids in soon. I have a feeling they want to move quickly.

Skechers hasn’t filed an 8-K yet, but did put out a press release (read here) with more information than KPMG or Herbalife included.  After noting the resignation and emphasizing there is, “no reason to believe that the financial statements of Skechers have been materially misstated,” Skechers continues by stating the partner in question, “is under federal investigation for providing non-public information of his clients to a third party in exchange for money. The third party then used that information to trade stocks of several West Coast companies.”  So, a very senior partner traded information for money. Simple to do, and yet so many consequences and so hard to unwind.

As expected, both Herbalife and Skechers tried to focus their comments on the fact that they didn’t screw up, but rather it was KPMG’s fault.  And they’re right. One partner did something illegal, and now these companies are stuck doing damage control, and then cleanup.  As did KPMG, I think both Herbalife and Skechers both did the best they could with the cards they were dealt.  No doubt, it will be interesting to watch things play out over the coming months.