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October 7, 2009

KPMG Australia audit partners banned from practice

Three KPMG Australia audit partners have been banned from practicing as registered auditors for between nine months and two years following an investigation into their involvement in the audits of Westpoint Group companies.

Property company Westpoint Group collapsed in 2006 with losses of more than A$300 million ($247 million).

KPMG is being sued for A$200 million by the Australian Securities and Investment Commission (ASIC) for alleged negligent conduct in its audit of several Westpoint companies for the years ended 30 June 2002, 2003 and 2004.

When the action was launched in October last year, the Big Four firm said it did not believe the conduct of its audits caused or contributed to the collapse of the Westpoint group or losses suffered by investors.

Now ASIC has ruled that partners from KPMG’s Perth office – Brett Charles Fullarton, Robert Charles Kelly and Jonathan Grant Robinson – must not practice for two years, 18 months and nine months respectively.

The partners must undertake 10 hours of additional continuing professional education on audit-related matters during these periods and have their next three audits reviewed by KPMG’s partner-in-charge of professional practice (audit).

They must also pay ASIC’s investigation and legal costs.

Fullarton signed unqualified audit opinions on various entities within the Westpoint Group for the financial years ended 30 June 2002, 2003 and 2004.

ASIC determined these audits were inadequate and did not comply with Australian Standards on Auditing (ASA).

Concerns included failure to obtain sufficient audit evidence on which the going concern assumption was based.

ASIC said Fullarton also failed to qualify an audit opinion on the basis of inappropriate use of financial reporting and presentation standards.

Kelly signed unqualified audit opinions on various entities within the Westpoint Group for the year ended 30 June 2004.

ASIC said these audits were also inadequate and failed to comply with ASA.

Concerns included failure to obtain sufficient audit evidence in connection with cash flow forecasts and failure to obtain sufficient evidence related to costs-to-date and estimated cost-to-complete.

Westpoint engaged Robinson to audit the compliance plans of three managed investment schemes for the financial year ended 30 June 2004. He issued unqualified audit opinions for each.

ASIC’s primary concerns were that Robinson failed to comply with Australian Auditing Standards and should have identified material breaches in the compliance plans.

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