When You Know It's Time for Motorola to Change Auditors

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By Jonathan Weil

The proxy adviser Glass Lewis & Co. is out with a report recommending that Motorola Solutions Inc. shareholders vote against ratifying KPMG LLP as the company's independent auditor.

The report cited a column I wrote last June revealing that Motorola was one of the unnamed KPMG clients whose audits were criticized by the Public Company Accounting Oversight Board in an inspection report issued in 2008. Motorola's identity emerged in court records last year as part of a class-action lawsuit against the company.

The accounting board's inspectors found that KPMG had allowed the company to record revenue from a transaction with Qualcomm Inc. during the third quarter of 2006, even though the contract wasn't signed until the early hours of the fourth quarter. Without the deal, the company, then known as Motorola Inc., would have missed its third-quarter earnings target.

It's unlikely that a majority of Motorola's shareholders will vote against KPMG, which has been Motorola's auditor since 1959. Most investors voting their proxies tend to go along with directors' recommendations. Even so, a large vote against KPMG, say 20 percent or more, might get the board's attention and force directors to consider whether a change is overdue. (Disclosure: I worked for Glass Lewis as a managing director from 2006 to 2007.)

"We believe timely and accurate financial statements are critical to the effective operation of any company and help to ensure the full confidence of investors in the company's financial position," the Glass Lewis report said. "Further, we believe that excessively long audit relationships may breed an attitude of complacency or provide for a potential conflict of interest."

Bottom line: "Given the revelations and the half-century relationship between the company and KPMG, we believe shareholders would be better served by a new auditor." Motorola's annual shareholder meeting is scheduled for April 30.

(Jonathan Weil is a Bloomberg View columnist.)

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-0- Apr/19/2012 16:47 GMT