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April 10, 2013

KPMG resigns from two audit engagements following insider trading alert

KPMG US has resigned as auditor of health care group Herbalife and shoe manufacturer Skechers after sacking the head audit partner of the firm’s Los Angeles practice.

KPMG said it sacked the partner, said to be Scott London, after it was informed that he was involved, "in providing non-public client information to a third party, who then used that information in stock trades involving several West Coast companies".

"The partner was immediately separated from the firm," KPMG said in a statement.

"KPMG’s 22,000 partners and employees unequivocally condemn this individual’s rogue actions. This individual violated the firm’s rigorous policies and protections, betrayed the trust of clients as well as colleagues, and acted with deliberate disregard for KPMG’s long-standing culture of professionalism and integrity."

Consequently, KPMG decided to step down as auditor of Herbalife and Skechers due to impairment of independence.

Skechers chief operating officer David Weinberg said: "KPMG advised Skechers that, as a result of these developments, KPMG has determined that its independence has been impaired and it must resign as Skechers auditor immediately and withdraw its auditors’ reports for the fiscal years 2011 and 2012".
"KPMG has advised us that that they have no reason to believe that there were any misstatements in our financial statements, and we firmly believe that there has been no misstatements of our results or financial condition," Weinberg said.

According to Reuters, the FBI is to investigate London’s actions.

Unlike in many markets, in the US audit opinion is signed off by the audit firm and not the lead partner in the engagement. In 2011, The US Public Company Accounting Oversight Board (PCAOB) proposed that audit firms should be required to disclose the lead partner’s name in audit reports, and in the PCAOB annual report form.
The discussion paper was opened until 2012 and collected a variety of opinions, but no change in requirements were made as a result.

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