It is not a common situation that a Big Four accounting firm will be hit with a multi million-dollar decision from a board of judges, because mostly of the situations as such is easily dismissed or settled. However, one Friday, KMPG LLP was hit with a $31.8 million verdict in a case alleging that the said accounting firm has audited the books of a New Jersey company in a negligent manner.
The KPMG spokesperson Daniel Ginsburg said that they do not believe there is a factual basis for the said verdict and they plan to appeal and believe that they will prevail on appeal. He further said that KPMG has issued a going concern audit opinions wherein they stated that there was a substantial doubt about the company’s ability to continue as a going concern
It was Cast Art Industries LLC of Corona, California, which is no longer operational who brought in the suit. The said company alleges that in 1998 and 1999 Papel Giftware Inc., of Monroe Township, N.J., and its parent company, which is a client of KPMG has overstated their revenue and profits by creating invoices for sales that never occurred and as well as purposely double-invoicing customers for their orders that are placed only once. During those years where the incident happens, KPMG audited the company and was allegedly was not able to disclose the inflated revenue. However, when KPMG did the audit during those years, they claimed to have conformed with the generally accepted accounting principles.
During the year 2000 that Cast Art Industries LLC of Corona, California, which are creating various giftware and collectibles that, includes the lovable Dreamsicle line of statuettes has acquired Papel for $34 million, which also an amount that is allegedly lost when the accounting irregularity occurred.
The accounting firm maintained that they have fulfilled their obligation by advising Cast Art about the heavy debt made Papel’s future as an ongoing questionable concern. The firm said that they are not obligated to notify Cast Art about the irregularities uncovered during the audit.
Due to KPMG’s narrow views about its duty to the plaintiff, the disputed plaintiffs said that it contradicts the accounting firm’s own policies.
Cast Art’s lead attorney says that he introduced an evidence in the form of a training courde for KPMG’s auditors on how to uncover accounting fraud. One of KPMG’s trial lawyers Kelly Hnatt of Wilkie, Farr, gave the said training and Gallagher in New York, a month before the Papel audit report were issued.
The trial for this case held in New Jersey state court and lasted for more than four weeks, and the jury found out that KPMG had committed professional irregularities that undercut the company’s value.
It is being strongly believed that this verdict is one of the largest that is being rendered against KPMG ever according to lead plaintiffs counsel Michael Avenatti. The said damages will possibly reach up to $41 million if interest will be added.
The trial was presided by the Superior Court Judge Philip Paley.