Eight Questions the WSJ Could Have Asked KPMG China

Managing in Asia: KPMG Audit Chief Benny Liu Faces China Risks – WSJ.com.

As a public relations professional myself, I want to congratulate the KPMG PR team on their coup in today’s Wall Street Journal. In an interview with the Journal‘s Duncan Mavin, Benny Liu, the head of the Audit practice at KPMG China is given an singular opportunity to deliver his messages in what was clearly a very friendly discussion.

This interview could have been much more challenging for Liu. At a time when Chinese companies that are listed offshore are facing uncomfortable questions about the accuracy of their accounting, you would expect a newspaper that is ostensibly an advocate for investors to come down on a senior China auditor with some very hard questions. Alas, those question were not forthcoming. Not today, anyway.

But the recent wave of scandals around U.S.-listed Big Four-audited Chinese companies suggests that the time will come when harder questions will be asked. Mr. Liu and his PR team would do well to prepare for such questions as:

1. What measures does your firm have in place in your China practice to ensure that auditors and their reports are not influenced by the pressure to retain and please the client?

2. Has your firm ever altered its audit reports on a Chinese company under pressure either from the client or from a senior KPMG executive?

3. Has your firm ever reprimanded, transferred, or terminated an employee in China because of a refusal to alter an audit report to reflect more favorably on a client?

4. What does your “risk management” department do, exactly? In layman’s terms?

5. Have you personally ever intentionally overlooked or failed to report client accounting practices that do not conform to GAAP? Have you ever done so for a company that was listed or was about to be listed in the U.S.?

6. What do you feel should be done to auditors and firms who overlook, ignore, or fail to report illegal, unethical, or ineffective accounting procedures practiced by their clients?

7. Is there a need for a independent professional accreditation body for auditors in China? Why/why not?

8. What would you change about the auditing profession to ensure that investors and the public are better protected?

This is not to pick on KPMG China: any big-four auditing firm with operations in the PRC would do well to keep this list of questions close, build on it, and be ready with something more than a holding statement when – not if – these questions come up.

David Wolf

NICE! I’ll add that to the one suggested by Bill Bishop: “10. Is your current willingness to speak to the Wall Street Journal in any way related to the 2012 expiration of your 20-year China JV contract?” and my follow-on: “How does that deadline change the way you audit state-owned enterprises?”

TaxMan Guangzhou

# 5 – The current issue is nothing to do with US GAAP. It’s to do with the differences between Chinese GAAP and US SEC regulations and the Chinese Government being reluctant to allow other regulators access to criticizing both their political pressurising and the lack of transparency when it comes to how China’s government regulators view audit. Remember, auditors are de facto government agents in conducting statutory audit, but the audit still has to be signed off by the MoF.

David Wolf

Thank you for the correction, TaxMan. As you can tell, I am not an accountant. Your point about auditors being de facto government agents is well taken. But let’s take the politics out of this for a moment.

In the eyes of international investors and the general public outside of China, the US SEC and its regulations are seen as a system designed to protect the interests of investors from feckless managers. A failure by a company to comply with those regulations will be seen as an effort to undermine the interests of investors. Regardless of the differences between Chinese GAAP and US SEC regulations, any company offering itself for sale to investors in the US is expected (not unreasonably) to comply with US securities laws. If it cannot do so, it does not belong on a US bourse.

You are spot on about the politics, though, and I think part of the reason the Chinese government is looking for ways to repatriate those offshore listings is frustration the pressure and criticism from overseas.

China Readings for October 25th | Sinocism

[…] Eight Questions the WSJ Could Have Asked KPMG China « Silicon Hutong – As a public relations professional myself, I want to congratulate the KPMG PR team on their coup in today’s Wall Street Journal. In an interview with the Journal‘s Duncan Mavin, Benny Liu, the head of the Audit practice at KPMG China is given an singular opportunity to deliver his messages in what was clearly a very friendly discussion. […]

Matt

These questions should be asked regularly in every country. Enron, Worldcom, etc would not have happened if these questions were answered on regular basis. I live and work in Shanghai, been in Greater China for a long time. My answers to the questions would be:
1. Almost impossible to protect against this anywhere in the world except by clean-rooming the audit team.
2. This is part of audit close out procedure to ‘negotiate’ the final written statement.
3. Except for a 1-person company i cannot imagine this not happening anywhere in the world.
4. Risk management in an audit firm works to protect the audit firm. Has same function for laywers and accounting firms.
5. EVer seen a firm that has proven through published accounting procedures and examples lifted at random from its books and records, that it complies 100% with the entire provisions of the law? No. So does anyone comply 100%? No.
6. My opinion is take them out of business. Auditors, like accountants and lawyers are there to operate according to law. That is the public and government expectation. If they dont meet it then register and close the business.
7. I think not. Auditors should be a government function to remove incentives to act for commerical advantage or gain. Yes this is idealistic but need to strive for it.
8. Government involvement and oversight. Transparency of audit procedures.

kpmgkilledjane

KPMG KPMG KPMG TAX SHELTER
TAX SHELTER TAX SHELTER

FRAUD FRAUD FRAUD

GREECE IS BURNING AND KPMG AUDIT’S THE SECOND LARGEST GREEK BANK WITH THE MOST OF THE WORTHLESS GREEK DEBT, ALPHA

IS ALPHA A BUNCH OF FRAUDSTERS LIKE KPMG???????????????????????

SEE ALPHA’S QUARTERLY REPORT BELOW, WHY ISN’T ITS ALMOST e7 Billion of GREEK DEBT WRITTEN DOWN TO ZERO OR AT LEAST 50 CENTS ON THE EURO????

OH, YEAH TAX AND ACCOUNTING FRAUD ARE A SPECIALTY OF KPMG.

BEWARE ALPHA EMPLOYEES AND KPMG EMPLOYEES THESE FINANCIAL STATEMENTS CONTAIN MORE FRAUD THAN MOST, KPMG WILL STOP AT NOTHING TO DESTROY THE LIFE OF YOU AND YOUR FAMILY TO SAVE ITSELF. JUST LOOK AT HISTORY IT ALWAYS REPEATS.

7 BILLION OF FRAUD DESTROYS ALPHA BANK, BE VERY WORRIED IF YOU WORK AT ALPHA OR ON THE FINANCIALS BECAUSE WHEN KPMG GETS CAUGHT YOUR LIFE AS YOU KNOW IT IS OVER.

KPMG IS A FIRM OF LIARS AND THIEVES AND WILL HIRE ANOTHER FIRM OF LIARS AND THIEVES, SKADDEN ARPS TO DESTROY YOUR LIFE SO KPMG CAN SAVE ITSELF.

SKADDEN ARPS HAS PARTNERS LIKE BOB BENNETT WHO SPECIALIZE IN LYING TO THE GOVERNMENT SO KPMG CAN MINIMIZE ITS COSTS RELATED TO FRAUD.
BENNETT WILL MAKE SURE YOUR LIFE IS DESTROYED WITH RUTHLESS BASELESS NASTY DISGUSTING LIES TO HELP SAVE KPMG.

DUDES WRITE OFF YOUR BAD DEBTS INSTEAD OF USING KPMG’S FRAUDULENT STRATEGIES TO MINIMIZE OR HIDE THEM, THAT IS FRAUD.

HTM OR HELD T MATURITY IS A JOKE AND ONCE THE MEDIA FIGURES IT OUT THE JOKE WILL BE ON THE EMPLOYEES OF KPMG AND ALPHA BANK WHEN KPMG HIRES A FIRM LIKE SKADDEN ARPS WITH LAWYERS THE LIKES OF BOB BENNETT WHO WILL TELL SUCH MASSIVE LIES ABOUT THE FRAUD AT ALPHA AND BLAME INDIVIDUALS WHO EITHER WORK AT ALPHA OR KPMG, KPMGers AND ALPHA EMPLOYEES WILL WISH THEY NEVER EXISTED.

NOTE THE FINANCIAL TIMES AND OTHERS HAVE ALREADY WRITTEN ARTICLES ON HOW RIDICULOUS HTM ACCOUNTING IS ESPECIALLY WHEN IT COMES TO THE WORTHLESS GREEK DEBT.

GOOD LUCK, I STILL PRAY FOR DEATH EVERY DAY AS A DIRECT RESULT OF THE MASSIVE LIES KPMG TOLD ABOUT ME TO THE GOVERNMENT AND THE DESTRUCTION WROUGHT UPON MINE AND MY FAMIL’Y LIFE (INCLUDING THE DEATH OF FAMILY MEMBERS).

BEWARE OF KPMG!!!!!!!!!!!!!!!!!

Frontier Stratey Group

Also important to ask any major auditor working in China could be in tregards to defaults in small and medium-size enterprises, especially those in the banking sector. In terms of auditory oversight, there was obviously something lacking for such a large swathe of organizations to default in such a short amount of time.