Blame game: KPMG accused of lax auditing of New Century

From The LATimes: "Driven by a 'brazen obsession' with generating sub-prime mortgages, Irvine's New Century Financial Corp. engaged in improper accounting that overstated its profit and allowed top executives to reap millions of dollars in inflated or undeserved bonuses, a U.S. Bankruptcy Court examiner said in a report released Wednesday.

More: "Michael J. Missal's report said senior managers 'turned a blind eye' to the 'ticking time bomb' created by the high-risk lending in 2005 and 2006. At the same time, Missal said, New Century's auditor, KPMG, contributed to the problems by failing to exercise due care in reviewing its books, leading to material misstatements in New Century's financial reports."

From The New York Times: "In a sweeping accusation against one of the country’s largest accounting firms, an investigator released a report on Wednesday that said 'improper and imprudent practices' by a once high-flying mortgage company were condoned and enabled by its auditors."

KPMG denies the accusations in the report, which was commissioned by the United States Trustee overseeing the New Century bankruptcy.

Your thoughts? Comments? Email story tips to peter.viles@latimes.com
Photo Credit: New Century Financial's Irvine headquarters, in a file photo from May 2007, via L.A. Times

Comments

['nuff]

Looks like nothing was learned by the Enro fiasco.
On second though, looks like much was learned.

[Maggie Knowles]

I got the report from Bloomberg online - here's my favorite part:
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Missal said the estate may also have reason to sue directors and officers to seek recovery of bonuses paid to them in 2005 and 2006 because those bonuses were tied to incorrect financial statements. The estate ``could seek millions of dollars in recoveries,'' according to the report. Missal said in an interview that some bonuses for executives were in the ``tens of millions'' of dollars.

Three founders of the company, former Chairman Robert Cole, former Vice Chairman of Finance Edward Gotschall and former Chief Executive Officer Brad Morrice received bonuses in 2005 ``that were at least 300 percent more than they should have been,'' according to the report.

The bonuses were based on profits resulting from bad accounting, Missal said in the report.

Loss, Not Profit
Because of the accounting failures, New Century reported a profit of $63.5 million in the third quarter of 2006 when it should have reported a loss. The company reported that earnings grew 8 percent for that quarter, when they actually declined at least 40 percent, according to the report.

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click here for the entire article:
http://tinyurl.com/2tpap4

[gary]

hey nuff........... your right they did learn. they learned that nobody in govt would expect the same play twice. That only works for the NFL when its 4th and goal.

[Tom]

No surprises here. Everyone wanted to live the lie, convinced that property would keep going up forever. With as much money as was being thrown around in real estate I'm sure the auditors figured there was more were that came from and any losses on the books would be made up for with the truckloads of money that were coming in the front door. But in the meantime why scare investors?

Unfortunately, then came the cold grip of reality.

[Lou]

KPMG=Arthur Anderson

[Feddy]

Along the same lines, Deloitte issued a clean opinion, with no going concern, for Bear Stearns, just six weeks before the JP Morgan deal was arranged.

[MyLessThanPrimeBeef]

And don't forget the ratings agencies. I hardly think they are merely incompetent; after all, those agencies are run by humans.

[kyle]

Speaking as an accountant, we learned a thing or two ourselves...

Due the sox legislation passed after the last round of accounting scandals (Arthur Anderson), the job opportunities for accountants expanded astronomically. Even the Anderson accountants with one or two exceptions were fought over by rival firms.

Accountants are a bit slow but we have finally stolen a page from the legal profession and corporate mangagement. Nothing is better for your profession than malfeasance/incompetence.

When you have no shame, anything is possible in America.

The revenge of the bean counters.

[robert laughing]

See, the Government didn't go far enough after shutting down Enron's accounting/auditor - these Big 5 are simple handsomely rewarded as unindictred co-conspirators in RICO and fraud. Should have shut down ALL 5 Accounting/Auditing firms...but they pay too much money to both houses of congress and both political parties. Am I not right, Senator Grassley?

[John]

Auditors are supposed to be the reason that the public has confidence in the financials issued by companies. Simply shutting down all the firms is an asinine statement.

Another way to ensure faith needs to be found. Until that happens, nothing is going to change.