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By NYSSCPA.org E-zine Staff
Posted on 3/23/06
NEW YORK -- KPMG and law firm Sidley Austin LLP agreed to a new settlement in the class-action lawsuit related to the sale of questionable tax shelters, The Wall Street Journal reported Thursday.
Under the new version of the settlement, filed Wednesday in federal court in New Jersey, KPMG and Sidley Austin would pay no more than, but most likely far less than, the $195 million originally envisaged, as well as up to $30 million in legal fees. KPMG, which sold the questionable tax shelters, will bear the brunt of this cost, while Chicago-based Sidley Austin, which gave legal advice on the shelters, will pay about 20 percent, The Journal reported.
According to The New York Times, which cited lawyers who read its proposed terms, given the number of opt-outs in the original deal, the final amount available is unlikely to exceed $155 million, and may drop to $125 million or lower.
The revised settlement terms would reduce the amount the firms will pay based on the number of plaintiffs who opt out. The amounts to be received by individuals won't necessarily decline because of this reduction. They would depend on the specific claims of each individual investor, The Journal reported.
Also, The Times reported that under the terms of the revised settlement, some 60 investors who chose not to join can come back in. But investors who are currently in the deal can now elect not to participate.
In a statement, a KPMG spokesman said, "The amendment of the original settlement allows us to continue pursuing a fair and reasonable settlement of this matter."
Melvin Weiss, senior and founding partner at Milberg Weiss Bershad & Schulman LLP, which is lead counsel for the class-action plaintiffs, said that individuals who think they can get a better deal on their own can "go try. I think quite frankly that this is a very fair settlement from a lot of angles."
The previous $195 million deal, brokered last September through Milberg Weiss Bershad & Schulman, collapsed in recent months when nearly one in four eligible investors chose not to take part, saying that it did not offer them enough compensation, The Times reported.
The civil class-action settlement is intended to return to investors the fees that they paid both to KPMG and to the law firm of Sidley Austin Brown & Wood for four shelters known as Flip, Opis, Blips and SOS. The law firm, which provided legal opinions advising the shelters were legitimate, something the Internal Revenue Service disagreed with, The Times reported.
Lawyers for KPMG filed papers Wednesday in the United States District Court in Newark, N.J., asking a federal judge to set a hearing in late May to approve the revised deal, The Times reported.
In other accounting oversight news this week:
PCAOB: Big Four Addressed Audit Concerns
The Public Company Accounting Oversight Board (PCAOB) said Tuesday that the Big Four accounting firms have addressed criticisms raised in regulatory inspections that were conducted more than two years ago, ensuring that confidential portions of the reports will remain confidential, MarketWatch reported.
In 2004, the PCAOB its first-ever regulatory report cards, finding "significant accounting and audit issues" during inspections conducted a year earlier.
- Click here to read the first release, which provides information about the PCAOB’s process for determining whether a registered accounting firm has satisfactorily addressed quality control criticisms in an inspection report (Adobe Reader required).
- Click here to read the second release, which describes observations about efforts undertaken by the Big Four to address quality control concerns identified during the Board's initial, limited inspections of those firms (Adobe Reader required).
The reports did not include details about quality-control systems in place at each of the firms. Under the 2002 Sarbanes-Oxley law, that information would remain confidential for at least a year. If firms had failed to address criticism about their quality controls within 12 months, then the PCAOB would have been able to make public its criticisms, MarketWatch reported.
"Our initial experience with the process generally validates the premise of the approach set out by Congress," PCAOB Acting Chairman Bill Gradison said in a PCAOB statement. "The large firms were responsive to the board's supervisory model, and as a result of the process, the board believes that the firms have crafted and undertaken important steps that, if conscientiously implemented, will have beneficial effects on audit quality."
Deloitte & Touche, Ernst & Young, KPMG and PricewaterhouseCoopers, which were the subjects of the first-ever inspections, could not immediately be reached for comment by MarketWatch.
PCAOB Announces Deputy Chief Auditors
The PCAOB announced last week that Laura Phillips and Jennifer Rand have been named deputy chief auditors, reporting to Tom Ray, PCAOB chief auditor and director of professional standards, according to a PCAOB press release.
Phillips joined the PCAOB staff in July 2003 and was named associate chief auditor in February 2004. According to the release, she played a substantial role in developing PCAOB Auditing Standard No. 2, which implements the internal control audit requirement established by the Sarbanes-Oxley Act of 2002. Since then, Phillips has led the PCAOB staff efforts to promote the efficient and effective implementation of Auditing Standard No. 2.
According to the release, as deputy chief auditor, Phillips will provide technical direction on the development of the PCAOB's standards and ensure that standards and related information developed by the PCAOB are available and appropriately communicated to public company auditors and other relevant parties.
Prior to joining the PCAOB staff, Phillips was an audit professional with Ernst & Young.
Rand joined the PCAOB staff in December 2003 as associate chief auditor. She has been responsible for organizing and administering the PCAOB's Standing Advisory Group, monitoring other domestic and international auditing standards-setting activities, and PCAOB standards-setting projects. As deputy chief auditor, she will oversee and coordinate all PCAOB standards-setting projects and continue to administer the Standing Advisory Group. Rand also will serve as the PCAOB observer to the International Auditing and Assurance Standards Board of the International Federation of Accountants (IFAC).
Prior to joining the PCAOB staff, Rand was director of the SEC Practice Section of the American Institute of Certified Public Accountants. She began her career as an audit professional with Price Waterhouse.
