KPMG AT IT AGAIN

Another major accounting firm is caught ignoring reality to please the customer.

UPDATE 3-Auditor KPMG hit with billion-dollar U.S. lawsuit
Wed Apr 1, 2009 11:58pm BST

By Tom Brown

MIAMI, April 1 (Reuters) - Accounting giant KPMG was hit with a billion-dollar lawsuit on Wednesday over claims its "grossly negligent audits" helped trigger the collapse of a top subprime mortgage lender at the start of the U.S. housing crisis.

New Century Financial Corp, the largest independent provider of home loans to people with poor credit, filed for bankruptcy two years ago amid mounting customer defaults.

What I found especially damning is this tidbit from the Wall Street Journal:

In the lawsuits filed Wednesday, Thomas, Alexander & Forrester said emails showed specialists within KPMG had tried to point out errors in the company's financial statements but were silenced by the KPMG partner in charge of the audits "to protect KPMG's business relationship with, and fees from, New Century." Accordingly, the trustee said KPMG lacked the independence that is required by ethical and Securities and Exchange Commission rules.

"They were cheerleaders for management when they were supposed to be cheerleaders for the public interest," Steven Thomas, counsel to the trustee, told Dow Jones Newswires.

The lawsuit cites an email by KPMG specialist John Klinge in which he continued to raise questions about an incorrect accounting practice on the eve of New Century's 2005 10-K filing. In an emailed response, according to the complaint, John Donovan, lead KPMG audit partner, said, "I am very disappointed we are still discussing this. As far as I am concerned we are done. The client thinks we are done. All we are going to do is p--- everybody off."

As I noted before, this is a problem KPMG has had for more than a decade.