Accounting giant KPMG probed for unlawful conduct.

Federal prosecutors are investigating whether KPMG advised clients to participate in dubious tax shelters.

The Justice Department has been investigating KPMG and some former partners for promoting the sales of tax shelters from 1996 through 2002 for wealthy individuals. The shelters allegedly violated the tax laws and yielded large advisory fees for KPMG while costing the government as much as $1.4 billion in lost revenue.

After seeing what happened to Arthur Andersen, the accounting profession and government are more than likely to seek resolution with KPMG through a negotiated cash settlement. With the "Big Eight" now consolidated to the "Big Four", there won't be any "independent" public accounting firms left to audit the Fortune 1000 companies.

Just how effective is the Sarbanes-Oxley Act if firms such as KPMG know that their license to practice won't be revoked such as the case with Arthur Andersen? It seems like regulators have virtually no leverage on KPMG as a prolonged court case would prove to be more costly than any negotiated cash settlement. At this point, prosecutors can only go after the specific partners involved in the tax shelter advisory scandal and possibly bar them from private practice including tax consulting. This would serve as a deterrent for any accounting professional from participating in any future schemes.


 
© 2005 Nelson Chin.
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