Last week, we learned that KPMG was the latest accounting firm to be apple of Rahm Emanuel's eye. The House of Klynveld is hiring 500 new employees over the next 5 years in Chicago and they also unveiled their new digs and plans to invest $165 million at the Aon Center. It was a pretty great day for Kamp KPMG in Chicago. HOWEVER, word from inside is less enthusiastic:
I heard KPMG Chicago moved to the Aon building to downsize office space. I found this interesting for 2 reasons:
1. They said they were hiring more people in Chicago
2. The Aon building doesn’t have enough cubicles so new staff sits together in a conference room
Our understanding is that this is an especially touchy subject in the tax practice (which makes sense since the audit and advisory staff likely have to hotel if they want to work in the office):
[This] is true for tax. They had requirements for moving due to the limited space at Aon. They were told that they could only move one box of stuff to Aon and that new staff is not assigned a cubicle but a space in a conference room instead.
It would be understandable if the KPMG tax folks were a little kranky about the kramped space. Unlike auditors, they can't be expected to know what it's like to work with ten to fifteen other people in a conference room the size of a closet.
And, unfortunately for Bank of America and KPMG, that could mean digging through the couch cushions.
Several large institutional investors have rejected a court settlement where Countrywide Financial Corp. had agreed to pay $600 million to a number of national pension funds. Those pulling out of the agreement include BlackRock Inc.; the California Public Employees Retirement System, or Calpers; T. Rowe Price Group Inc.; Nuveen Investments Inc.; and the Maryland State Retirement and Pension System, according to a document from the suit filed in U.S. District Court in Los Angeles. The investors decided the settlement, initially agreed to last May, wasn’t enough and will seek their own terms with the mortgage originator and its current owner Bank of America Corp., as well as Countrywide’s auditor KPMG LLP. KPMG had committed another $24 million to the settlement.
In typical HofK fashion, the firm didn’t bother commenting for the Journal’s story however BofA managed to express their disappointment, “It is unfortunate that some investors chose to opt out of what we believe is a fair and equitable agreement to settle these issues.” Right. Because the likes of BlackRock and Calpers should be tickled pink with the pleasure of splitting $624 million with dozens of other investors.
The long-awaited PCAOB inspection report of KPMG came out on Friday and while we were excited for this unveiling, the Board managed to issue the report at around 4 pm on Friday. Since the Board lacks any sense of timing whatsoever, we opted to punt on our respective post until today because well, we’re human and not a soulless blogging robot as likely perceived by TPTB at the PCAOB.
It’s worth mentioning that this is the first PCAOB report that has been issued since the SEC’s final rule on the inspections that allows audit firms to postpone the release of the report simply by taking issue with any of the findings. Since any appeal could reportedly delay the report by “30 to 100 days,” it’s safe to assume that, with a report date of October 5th, KPMG didn’t have a beef with the findings. You could also assume that since the SEC is taking a peek at these reports now, there’s going to be a ten day lag on the release of the report to allow the Commission enough time to give it their extra-special sniff test.
Anyway, back to the matter at hand –
KPMG had eight issuers noted in the Board’s inspection report and the first two are doozies. “Issuer A” runs approximately two pages and includes failure on testing of “allowance for loan losses” to “test[ing] the issuer’s estimates of fair values of financial instruments” and goodwill impairment.
“Issuer B” is a little more interesting since one of the failures the Board found was related to deferred tax assets which makes us wonder if this is Citi, since analyst Mike Mayo was loudly questioning the bank’s treatment of its DTA. Francine McKenna not-so-subtly solicited guesses on Friday as to who this “bank” might be (even though no issuer is identified as such) but it does make us wonder.
The Board cites run-of-the-mill failures for the rest of the issuers (e.g. fair value testing, pension plan testing, failure to confirm cash[!]) and the House of Klynveld’s response letter was cordial and anticlimactic.
But if you’re KPMG, do you really care what the PCAOB thinks when you’ve got an adorable gnome-ish looking analyst giving you the tepid thumbs-up (despite not knowing your name)? That’s the only endorsement we would need.