The Mystery of Herbalife's KPMG Auditor
Who was the mystery partner at KPMG LLP who was responsible for Herbalife Ltd.'s audit reports?
That sort of information should be a matter of public record -- but isn't. The auditing profession's U.S. regulator has had aproposal on the table for several years to make accounting firms disclose which of their partners audit which corporate clients. For now, investors usually have no way of knowing. The firms have successfully lobbied the regulator to back off.
A lot of people today have been trying to verify the identity of the person at KPMG whose actions led the firm to resign as Herbalife's auditor. Yesterday KPMG released a statement that said "the partner in charge of KPMG's audit practice in our Los Angeles business unit 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." KPMG said the partner "was immediately separated from the firm." (In plain English, I can only assume that means the person was fired.) The firm went on to say it had resigned and withdrawn its audit reports from two clients, after concluding "that the firm's independence has been impacted."
This morning, Herbalife said it was one of those clients, and that the partner KPMG had referred to was the one responsible for Herbalife's outside audit. The nutritional-supplements marketer will now have to hire a new accounting firm to re-audit its financial statements for prior years.
This afternoon, the shoe maker Skechers USA Inc. confirmed it was the second client, citing "misconduct by KPMG's lead audit engagement partner on the Skechers account." Skechers said it was informed by KPMG that the person "is under federal investigation for providing non-public information of his clients to a third party in exchange for money."
The Public Company Accounting Oversight Board needs to get off its duff and pass new rules requiring public disclosure of audit partners' names, so investors can find out for themselves who is responsible for the annual audits at publicly owned companies. Their names shouldn't be inside information.
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Jonathan Weil at firstname.lastname@example.org
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