That’s how long KPMG has been General Electric’s auditor. When that engagement started, the rotund William Howard Taft was in the White House, there were 46 states in the U.S., and the start of World War I and Babe Ruth’s professional baseball career were still five years away.
But the spark in the GE-KPMG relationship might be starting to fizzle out. About 35% of GE shareholders voted in April against KPMG as GE’s external auditor, after two proxy advisory firms urged GE shareholders to cast a “no” vote for the Big 4 firm. Then last week, GE announced that its audit committee had moved forward with a tender process for the appointment of an independent auditor.
The audit committee did reappoint KPMG as GE’s auditor for 2019, but the plan to solicit bids from other audit firms casts some doubt that the relationship will continue past next year.
“The plan announced [Dec. 14] is responsive to our shareowners and balances the competing considerations about undertaking an audit firm rotation amidst the portfolio and other strategic actions that the company is currently executing,” said GE Audit Committee Chairman Geoff Beattie in a statement.
GE’s audit committee plans to provide additional details about its deliberations and the response to the 2018 auditor ratification vote in the company’s proxy statement that will be filed in March 2019.
In a statement, a KPMG spokesperson said:
“We’ve been privileged to work with GE for many years and are proud of our work and our teams. It is good governance and a responsible activity for strong audit committees to review and assess their external auditor relationships. We welcome the future opportunity to work with all the stakeholders to demonstrate the value KPMG can continue to deliver.”
2018 hasn’t been a banner year for GE accounting practices. Earlier this year, GE revealed that the Securities and Exchange Commission was investigating whether there was a miscalculation in one of GE’s insurance subsidiaries that cost the company $15 billion, as well as a $6 billion charge. The SEC was also investigating how the company recognized revenue from long-term service agreements for the maintenance and repairs of power plants and jet engines.
Then in October, GE said the SEC was expanding its probe, this time looking into a $22 billion goodwill impairment charge from the company’s power business.
Institutional Shareholder Services told GE shareholders before their April vote that a “long-tenured auditor can become too close to a client” and that a new auditor can “uncover problems previously unidentified.” And Glass Lewis said KPMG’s long tenure as GE’s auditor has thrown the firm’s “effectiveness and relationship with the company into question.”
All good things must come to an end. After 109 years, it might be time for GE to cast KPMG aside and get a new set of eyes to look over its books.