Securities and Exchange Commission
censured KPMG's Canadian arm Tuesday, saying it lacked independence in its turn-of-the-century audits of a now bankrupt Colorado company.
KPMG Canada and two partners settled the enforcement action, which covered their 1999-2002 audits of Southwestern Water Exploration. Neither the firm nor the partners -- Gary Bentham, the audit engagement partner, and John Gordon, the concurring and SEC-reviewing partner -- admitted or denied any wrongdoing in the settlement.
The news comes as the Justice Department continues to investigate KPMG's selling of tax shelters from 1996 to 2002. The probe has raised the possibility that the government could indict the firm and further narrow big companies' choice of big auditors.
The SEC says KPMG Canada, Bentham and Gordon lacked independence when they did the audits. KPMG Canada provided bookkeeping services to Southwestern and then audited its own work. After KPMG Canada prepared Southwestern's basic accounting records and financial statements, it issued purportedly independent audit reports on those financial statements. KPMG Canada's audit reports were included in Southwestern's annual reports that were filed with the Commission, the SEC said.
The SEC found that KPMG Canada, Bentham and Gordon engaged in "improper professional conduct" by virtue of their violations of the auditor independence requirements imposed by SEC rules and guidance and by generally accepted auditing standards.
KPMG Canada agreed to adopt and implement new auditor independence policies and procedures and to pay $73,682. That figure represents its fees from the audit and bookkeeping services performed for Southwestern, plus prejudgment interest.
The order denies Bentham the privilege of appearing or practicing before the SEC as an accountant, with a right to apply to resume appearing or practicing before the Commission in two years. Additionally, the order denies Gordon the privilege of appearing or practicing before the SEC as an accountant for nine months.