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Joint Disciplinary Scheme fines KPMG £1.6 million and clears Arthur Andersen UK

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7th Aug 2008
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In its latest batch of disciplinary orders and regulatory decisions, the Accountant's Joint Disciplinary Scheme has found KPMG at fault for its work on the 2000 audit of Independent Insurance Group.

The firm “accepted that loss could be turned to profit by using stop loss insurance which was too good to be true”. KPMG’s audit partner, named as a Mr Sayers, was advised by the firm’s concurring partner to confirm the stop loss terms directly with the reinsurers. No reason was provided for why the audit partner failed to do this. Independent’s actuaries, Watson Wyatt, told Sayers that they “did not understand why the reinsurers were writing these contracts when they appear to be obviously loss making.”

It subsequently turned out that Independent had agreed to pledge £141 million as a condition of obtaining the stop less, and there were further agreements which limited the liability of the reinsurers and sought to pass risk on to an Independent subsidiary. In addition, a different stop loss contract required the payment of a premium of £1.6 billion over four years. Shortly afterwards Independent’s chief executive resigned and the company went into liquidation.

Eight years after the event, KPMG was reprimanded by the JDS, fined £495,000 and ordered to pay costs of £1.15 million.

At a tribunal the following month the also looked at the role of Arthur Andersen UK in the 2001 collapse of Enron. The US firm was indicted in Texas for obstructing justice, specifically through destroying documents and deleting information. In 2005 the US Supreme Court overturned the conviction on the grounds of misdirection by the trial judge. However, the US indictment contained the allegation that documents were also destroyed in London.

JDS executive counsel Chris Dickson found no such evidence of any destruction by Andersen UK or its partners or staff, and has announced his decision to take no action.

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By Anonymous
12th Sep 2008 06:38

Once again......
......I take keen interest in noting that no members of the AIA are involved in such disciplinary and fraud fiascos.

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By Prem Sikka
01st Sep 2008 10:29

Joint Disciplinary Scheme fines KPMG £1.6 million and clears Art
This seems to be old news. JDS reported on this towards the end of June 2008. My artcile on the disciplinary game is available at

http://www.guardian.co.uk/commentisfree/2008/jul/04/economy

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By AnonymousUser
12th Aug 2008 02:39

How many auditors in AIA?
If AIA were to assess ACCA practice procedures, may I ask how many qualified company auditors were there in AIA after the demise of their first auditor Dr Jenejo?

Are there many equally qualified ones as the eminent and prominent auditors?

I am certain that it serves as additional "checks and controls" and a double surety that all professional bodies' practice procedures are well maintained and continually upgraded by having professional bodies examine each others practice procedures.

A good news here would be that the examination report of proefessional bodies examine professional bodies should be close to examination reports by any other authorities. This shall prove to the world that all RQBs are competent enough as any other authorities in this aspect of examining other professional bodies' practice procedures.

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By Anonymous
11th Aug 2008 17:15

Disciplinary Scheme has since changed
Since the Enron referrals to the JDS, things have changed. New referrals now go to the The Accountancy & Actuarial Discipline Board ("AADB") iwhich is the INDEPENDENT, investigative and disciplinary body for qualified accountants in the UK. So postings with suggestionsabout the ICAEW making improvements (like referring to ACCA) are out of date.

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David Winch
By David Winch
11th Aug 2008 09:33

Before reaching for the shredder . . .

Should anyone be tempted to reach for the shredder in cases where a client is under investigation, you need to be aware that in the UK there is legislation in s342 Proceeds of Crime Act 2002 making it a criminal offence to 'falsify, conceal. destroy or otherwise dispose of documents' relevant to a proceeds of crime or money laundering investigation.

Falsifying would include 'improving' the audit working papers before handing them over to the police under the terms of a production order. The police are not 'practice assurance' - not that you would 'improve' your working papers before handing them over to practice assurance either!!

David

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By Bil Loh
09th Aug 2008 07:39

B McFetridge
Agreed with you fully, but as a preventive measure or proactive action, all RQB/RSB practice procedures should be independently reviewed.

I suggest this - ACCA reviews ICAEW, AIA review ACCA, CIPFA review AIA, etc. If there should be another round of review, ie re-review, go ahead.

The practice procedure review panel should comprise two university professors, and any other learned people which is thought to improve and create worthiness towards the review. The chief reviewer shall be the learned member of the respective professional bodies.


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By Accounting WEB
08th Aug 2008 15:16

Procrastination and costs (yours, that is)
Eight years after the event????? what is the ICAEW playing at? Non-commercial bodies, especially regulatory ones, have the luxury of time and cost (as they are ultimately passing costs on to their hapless members) which the rest of us do not. Surely the ICAEW have a duty to (i) complete their investigations in a reasonable time - say, 6 months, to minimise stress and worry to those on the receiving end, and (ii) to minimise costs spent on behalf of the defendant.
It appears that the principles of responsibility for finances and promptness of action forced on the rest of us by statute, and enforced by the Institute, are cast aside when the Institute itself is involved! No surprise there then - thus has the City (and MP's/MEP's etc etc) always operated. Could I suggest a review of ICAEW's practices and procedures?... perhaps by ACCA??!!

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By Anonymous
08th Aug 2008 14:37

The article leaves things unsaid
On Enron re Anderson, the JDS Executive Counsel wrote that “There is in any event no evidence of any such [wilful] destruction [of documents] by Andersen UK or its partners or staff.” What is unsaid is whether he thought Anderson non-UK partners or staff might have been so involved, which is understandable as only Andersen UK or its partners or staff were covered by the JDS.

The article also makes no reference to the JDS Executive Counsel report on Enron re Lord Wakeham. At 27 pages long, much longer than his report re Anderson. His conclusion reads:

41. I believe that it was entirely appropriate for this matter to be referred to the Scheme, and for an investigation to have been commenced here. Looking at the case in the round, however, and as the evidence presently stands, I do not believe that it would be either practicable or in the public interest were I now to enquire further into the matter. I have therefore decided to take no further action against Lord Wakeham.

However of more interest for any potential chartered accountant non-executive director is Executive Counsel’s excellent pointer that a member should reach a degree of comprehension such that the member both understands the transactions and, equally importantly, understands the reasons for them.

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