Amid dwindling faith in accounting firms, KPMG LLP has chosen a new vice chairman for its financial services group and a new director of its banking group.
It plans to announce the appointments today.
KPMG picked up three banking clients after the collapse of Big Five rival Arthur Andersen, and it counts the biggest bank client list - 19 of the top 50 banking companies.
Joseph Mauriello has been named the vice chairman for its financial services group, succeeding Eugene D. O'Kelly, who became its chairman and chief executive officer in April. Jerry R. Licari has been named the national industry director of KPMG's banking practice, succeeding Robert F. Arning, who recently became the head partner in New York for the firm's financial services practice. Mr. Licari is based in Charlotte, N.C.
Accountants have been getting more bad press than usual this year in the wake of spectacular business failures blamed on accounting irregularities. Questions about Enron Corp.'s financial arrangements and Arthur Andersen's role as the energy trader's auditor and, more recently, WorldCom's admission that it reported inflated financial statements have raised questions about the audit process.
In an interview, Mr. Mauriello said board audit committees are responding. "There is no question there's been a refocus and a greater attention to detail," he said.
Mr. Licari added, "There is more communication with management and the boards and the outside auditors. The industry is moving in a consistent direction."
KPMG audits Citigroup Inc., Mellon Financial Corp., Bank One Corp., Wachovia Corp., and Wells Fargo & Co. among the top 20 banks. Some of those connections have existed for decades - KMPG has been Citi's auditor, for example, since 1969, and Dudley C. Mecum, the chairman of the audit committee of Citi's board of directors, is a former managing partner at KPMG.
Some analysts have criticized such close ties between banks and their outside accountants. Activist shareholder groups, including TIAA-CREF, and regulatory bodies, such as the New York Stock Exchange have recommended a regular rotation of outside auditors and the complete independence of members of board audit committees.
A recent report on corporate governance at banks by Prudential Securities analyst Michael Mayo gives the 20 largest banks fairly low scores for audit. Mr. Mayo gave the group of banks a 1.8 score out of a possible 4 after examining bank proxy statements for such issues as fees paid to accounting firms for non-audit work.
"Banks have the opportunity to improve corporate governance with greater accountability and independence of bank boards … and more objective auditing," Mr. Mayo said in the report.
Mr. Licari said there is enough shuffling of executives assigned to a particular client account to preserve objectivity. KPMG rotates partners assigned to clients every five years, while the Securities and Exchange Commission looks for terms of no more than seven years. "To do an effective job you have to have an ongoing knowledge of the company," he said.
KMPG eliminated a potential hot potato in February 2001 when it spun off its consulting division, KPMG Consulting. Some competitors have done the same, including Andersen before its crash and PriceWaterhouseCoopers. Accounting firms have been accused of having conflicts of interest in their dual roles as auditors and advisers to corporate clients.
