Earlier in the week KPMG was able to avoid a rebellion from shareholders of Wells Fargo over the role it played as the lender’s auditor. However the auditing firm will also have to face another vote later in the week from one of its oldest clients in the United States, General Electric. During the annual meeting of Wells Fargo, shareholders with a 9% stake in the bank were in support of a call from Glass Lewis, an advisory group, seeking to have the bank fire the auditing firm after a period of more than eight decades.
“While cognizant that an auditor is not expected to inspect every instance of potential fraud at a company, we believe that this unique case warrants additional scrutiny,” Glass Lewis said of KPMG with regards to Wells Fargo.
In the case of General Electric, which has had KPMG as its auditor since 1909, Glass Lewis as well as Institutional Shareholder Services have voiced support for the firing of the auditing firm by the conglomerate.
Last year the amount of fees that KPMG collected from General Electric and Wells Fargo was nearly $200 million. The role of the auditing firm has come under close scrutiny in the recent past at both firms which have both experienced mishaps. At Wells Fargo fake accounts as well as other scandals have resulted in the lender losing its privileged status as the most valuable bank in the world.
With regards to General Electric, shares of the industrial conglomerate have fallen sharply in the course of the last one year following financial difficulties and this has necessitated the propping up of reserves due to unexpected insurance liabilities. Regulators are investigating both firms.
KPMG’s response with regards to Wells Fargo has been to deny wrongdoing by asserting that the misconduct that occurred at the lender had nothing to do with financial reporting which was done professionally.
The gathering of GE shareholders will be the first meeting since the industrial conglomerate disclosed earlier in the year that it was being investigated by the U.S. Securities and Exchange Commission over insurance operations liabilities which were offloaded more than a decade ago and the reported revenues emanating from long-term service contracts.
The board of General Electric has indicated that its decision to stick with the auditing firm came after a review process which was rigorously conducted. In a proxy filing GE argued that there were advantages that came from having a long-tenured auditor and thus included deep institutional knowledge.