KPMG Australia is being sued for A$200 million ($134.8 million)
for alleged negligent conduct in its audit of property company
Westpoint Group, which collapsed in 2006 with losses of more than
A$300 million.

The claim against KPMG relates to the firm’s audits of several
Westpoint companies for the years ended 30 June 2002, 2003 and
2004. It is the 16th civil action the Australian Securities and
Investment Commission (ASIC) has commenced in an attempt to recover
funds for Westpoint Group investors. If successful, the action
could benefit up to 80 percent of the investors.

Commenting on the action, ASIC chair Tony D’Aloisio said: “The
proceedings brought by ASIC allege that KPMG negligently carried
out audits of the plaintiff companies by failing to identify issues
related to the continuing solvency of the companies and failing to
qualify audits of the companies.

“The claim also alleges that KPMG should have notified ASIC that
it had grounds to suspect that breaches of the Corporations Act
were taking place within the plaintiff companies, including
breaches of directors’ duties and rules against insolvent
trading.”

Auditor’s share

Aside from KPMG, ASIC has brought claims against five directors
of the eight Westpoint mezzanine companies, six financial planners
and trustees. The total claim now amounts to almost A$550 million
and KPMG’s portion is about 36 percent.

KPMG said it is disappointed by the action and will defend
itself vigorously.

“KPMG has co-operated fully with ASIC during its investigation
into the Westpoint collapse since December 2005,” the firm said in
a statement.

“While we understand that substantial monies have been lost by
investors in Westpoint companies, and that various groups and
individuals are naturally keen to recoup their losses, KPMG does
not believe that the conduct of its audits of Westpoint entities
caused or contributed to the collapse of the Westpoint group or to
losses suffered by investors.”