KPMG - Another Big Four CPA Firm Not Doing Their Job

This week I did a search on the civil litigation on KPMG.

KPMG is one of the Big Four auditing firm. In July of 2008, KPMG was ordered by a New Jersey Superior Court judge to stand trial in an accounting fraud lawsuit. The case was Case Art Industries, LLP v. KPMG, LLP.

KPMG was alleged to repeatedly made material misstatements on its audit reports for its client, Papel Giftware, Inc. As a result, Case Art later acquired Papel and suffered damages close to $50 million.

KPMG was ordered to pay $31.8 million to Cast Art after the jury trial in October 2008. The mistake KPMG made in this case was that its auditors failed to detect a massive fraud that should have been detected if they were doing their jobs professionally. On the accounting records, Papel was shipping the same products to the phony customers two to three times to inflate the revenue.

It is surprising to see that even a Big Four company like KPMG would so recklessly perform their audit work. The negligence on its part ends up hurting other businesses and their investors. This case also shows that when there is a conflict of interest in the audit work, auditors tend to lose their independence and integrity. It is an important area that all CPAs should understand how much their work can influence other people's life.