Do you think the integrity of KPMG auditing services has been damaged by the allegation that one of its senior partners would provide insider trading information?

Do you think the integrity of KPMG auditing services has been damaged by the allegation that one of its senior partners would provide insider trading information?

Part I

Accounting Firm KPMG Fired One of its Partners for Insider Trading
Trading Case Embroils KPMG

1. AICPA Code of Professional Conduct

Go to the AICPA.org Website, locate the AICPA Code of Professional Conduct, and read the following sections:

• ET Section 101 – Independence
• .01 Rule 101 – Independence
• .02 101-1 – Interpretation of Rule 101

2. Case study: KPMG, LLP

KPMG, LLP resigned as the auditor of nutritional-supplement maker Herbalife Ltd. and shoe company Skechers USA Inc. and said it had fired a senior partner in its Los Angeles office over alleged insider-trading tips. The Securities and Exchange Commission is investigating the trading, according to people familiar with those probes. Herbalife shares have been closely watched amid a public battle by two hedge-fund managers, William Ackman and Carl Icahn, over the company’s value and practices. KPMG said late Monday that the partner had allegedly provided inside information about its clients to someone who had used that information in stock trading. That person wasn’t connected with the battle between Messrs. Ackman and Icahn over Herbalife, said a person familiar with the situation. The recipient of the alleged insider information hasn’t been named. KPMG didn’t name the partner involved in the allegations, which it described as in charge of its audit practice in its Los Angeles business unit. KPMG partner Scott London headed the audit of Herbalife for the accounting firm. Mr. London didn’t immediately respond to requests for comment. Herbalife said KPMG told the company it was resigning as its independent accountant solely because of the impairment of its independence resulting from the former partner’s alleged unlawful activities and not for any reason related to Herbalife’s financial statements.

KPMG is resigning as auditor of two companies because of concerns that a senior partner has allegedly provided insider-trading tips. In addition, KPMG is withdrawing its audit reports on Herbalife’s financial statements for 2010, 2011, and 2012, as well as the report on the effectiveness of internal control over financial reporting for those periods. KPMG is also withdrawing its auditing reports for Sketchers for fiscal years 2011 and 2012. KPMG described the partner that may have provided insider information as “rogue” and someone who violated the firm’s rigorous policies and protections. At this point, KPMG has no reason to believe the financial statements contained any errors.

Read the full article and view the associated video using the links below.

Article: http://online.wsj.com/article/SB10001424127887323550604578411812224197182.html#articleTabs%3Darticle

Video: http://online.wsj.com/article/SB10001424127887323550604578411812224197182.html#articleTabs%3Dvideo
Alternative Video link: http://on.wsj.com/17p1Jmd

3. Respond to three or more of the following questions:

a. Do you think the integrity of KPMG auditing services has been damaged by the allegation that one of its senior partners would provide insider trading information?

b. Although Herbalife has become controversial because of questions raised about its business model, this allegation apparently does not relate to that controversy. Why do you think this new allegation has still caused Herbalife shares to fall after the announcement was made?

c. How could a high-integrity accounting firm such as KPMG protect itself against a rogue partner tarnishing the reputation of the firm in the future?

d. How does an auditor’s independence provide the basis for issuing an opinion on a company’s financial statements?

e. How did Mr. London’s actions violate his auditor’s independence? What action was KPMG then obliged to take when it learned of Mr. London’s actions?

f. Why must Skechers and Herbalife find new auditors and undertake its audits for the last 2 years all over again?

PART II
Explain what you learn about the disclosures of your SEC 10-K company relating to Income Taxes.
Your comments should relate to net income or loss as well as to the balance sheet treatment and disclosure in the notes to the financial statements.
Additionally consider the concept of risk and the aggressiveness of positions taken.

Part III
1. Go to: http://aaahq.org/ascLogin.cfm

UMUC updated US FASB Codification

This access information may be updated during the semester

2. Download the FASB Learning Guide

3. Take the following lessons:

Part I, Lesson 1: Getting Started with the Codification
Part I, Lesson 2: Navigating the Codification
Plus, at least one additional lesson of your choosing.

4. Complete one or more Exercise(s) from each lesson.

5. Post in this discussion to highlight concepts you learned about the FASB Accounting Standards Codification.

Part IV

Respond to one or more question(s) from each of the three categories below.

Category 1. Register for ACCT 311: Intermediate Accounting II

For next semester, UMUC recommends you register for the following course:

ACCT 311: Intermediate Accounting II

Intermediate Accounting II is a comprehensive analysis of financial accounting topics, including preparation of financial statements and external reports. The aim is to identify and analyze complex business transactions and their impact on financial statements.
In this course, you will take a deeper, comprehensive, and more advanced approach to learning accounting topics you learned in Principles of Accounting II. In addition, the following new topics are covered in ACCT 311: Intermediate Accounting II:

• GAAP requirements related to accounting for income taxes
• Pension and post retirement benefits
• Accounting for leases
• Full disclosure requirements in financial reporting
In WileyPLUS, go to Read, Study, & Practice, select any chapter between 13 and 24, and answer the following question:

Questions:

a) Identify and explain what interests you about the chapter you chose?
b) Given your success in ACCT 310 and that ACCT 311: Intermediate Accounting II is equally easy / difficult, how likely is it that you will register for ACCT 311? What, if any, additional resources are needed to maximize your success in ACCT 311?
Category 2. Scholarships for Accounting Majors

In the Education section, read information on AICPA Scholarships and Legacy Scholars.
Select one of the following AICPA scholarships:

• AICPA John L. Carey Scholarship
• AICPA Scholarship for Minority Accounting Students
• AICPA / Accountemps Student Scholarship
Questions:
a) Describe the process of applying to an AICPA scholarship.
b) How much is typically awarded to each student?
c) Read the AICPA Legacy Scholar Profiles. What do these scholars have in common?
Category 3. CPA Certification — is it for you?

Browse the site ThisWayToCPA.com and answer the following questions:

In the Exam & Licensure section, locate the requirements to sit for the CPA Exam in your state
(or any state if you are outside of the US or plan to move).

Questions:
a) Describe the requirements to sit for the CPA exam in your state.
b) Compare your state’s requirement to at least one other state.
c) Are there any advantages to taking the CPA exam in a different state?

Part V
Explain what you learn about the disclosures of your SEC 10-K company relating to Pensions and Post Retirement Benefits.
Your comments should relate to the income statement as well as to the balance sheet treatment and disclosure in the notes to the financial statements.
Additionally consider the concept of risk and the competitive advantage of positions taken.