17/08/2009 - 15:57

KPMG and ASIC in Westpoint agreement

17/08/2009 - 15:57

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Three partners of KPMG's Perth office, Brett Fullarton, Robert Kelly and Grant Robinson, have agreed to stop practicing as auditors for between nine months and two years following their involvement in the collapsed Westpoint investment group.

Three partners of KPMG's Perth office, Brett Fullarton, Robert Kelly and Grant Robinson, have agreed to stop practicing as auditors for between nine months and two years following their involvement in the collapsed Westpoint investment group.

 

KPMG and ASIC statements are pasted below:

 

KPMG and ASIC agree undertakings in relation to Westpoint


KPMG today announced that three of its audit partners have voluntarily agreed with ASIC to undertake a period of non practice as registered company auditors.

The undertakings relate to concerns raised by ASIC in connection with audits of Westpoint group companies between 2002-2004. These undertakings were made voluntarily by each of the three partners involved.

The undertakings do not contain any admissions of wrongdoing by the audit partners involved or of any deficiencies in the audit work performed by KPMG. These partners will retain their status as Registered Company Auditors and will continue to have the firm's full support.

The firm fully supports the pragmatic decision by each of the three audit partners to resolve ASIC's concerns by agreeing to make undertakings and thereby put the matter behind them.

In late 2005, ASIC launched an investigation into the collapse of Westpoint group. KPMG provided full co-operation and assistance to ASIC in the course of its investigation.

KPMG does not believe that the conduct of its audits of Westpoint entities caused or contributed to the collapse of the Westpoint or to losses suffered by investors.

The undertakings will not affect KPMG's vigorous defence of ASIC's civil action brought in October 2008. KPMG believes that the damages claims made against it should fail.

KPMG PARTNERS PROVIDE ENFORCEABLE UNDERTAKINGS

NOT TO PRACTICE OVER WESTPOINT AUDITS

The Australian Securities and Investments Commission (ASIC) has accepted enforceable undertakings (EUs) from three partners of KPMG's Perth office, Messrs Brett Charles Fullarton, Robert Charles Kelly and Jonathan Grant Robinson, who were involved in auditing activities relating to Westpoint Group companies.

The EUs provide that they will not practice as registered auditors for: Mr Fullarton - two years; Mr Kelly - eighteen months; Mr Robinson - nine months.

The EUs also provide that Messrs Fullarton, Kelly and Robinson must: participate in an additional ten hours of continuing professional education on audit-related matters during these periods; have their next three audits following these respective periods reviewed by KPMG's Partner in Charge, Department of Professional Practice- Audit; and pay ASIC's investigation and legal costs.

The EUs arise out of audits performed by the KPMG partners of Westpoint entities before the group collapsed in 2006. Investigations by ASIC have led to legal actions including penalties against a variety of parties linked to the collapse. A global mediation of ASIC's compensation actions for the recovery of investor funds is currently underway. A separate action against KPMG, initiated by ASIC, seeks financial compensation to repay Westpoint investors for losses arising out of the collapse of the Westpoint Group.

DETAILS OF THE AUDIT CONDUCT

Details of ASIC's concerns in relation to the audits that were performed by the KPMG partners are set out below.

The KPMG partners have acknowledged these concerns but do not accept them.

Mr Fullarton

Mr Fullarton signed unqualified audit opinions in connection with various entities within the Westpoint Group for the financial years ended 30 June 2002, 2003 and 2004. As a result of its investigations, ASIC formed a view that the audits of the entities conducted by Mr Fullarton were inadequate and failed to comply with Australian Auditing Standards. ASIC's concerns in relation to the audits included: failure to adequately consider the appropriateness of the recognition of profit earned on each such project as at the balance date;
failure to adequately consider the appropriateness of the calculation and recording of procurement and management fee revenue;
failure to obtain sufficient appropriate audit evidence in connection with cash flow forecasts and carrying value and classification of receivables, being audit evidence on which the going concern assumption was based;
failure to consider the importance of the effect of continued fund raising through promissory notes subsequent to balance date and up to date of signing of the audit report that were in excess of the amount specified in the relevant information memoranda;
failure to obtain sufficient appropriate audit evidence in connection with: actual costs to date and estimated cost to complete, revenue and profit of development projects being undertaken;
failure to obtain sufficient appropriate audit evidence in connection with valuation and disclosure of receivables and disclosure of loans to and from related parties; and
failure to qualify an audit opinion on the basis of inappropriate use of financial reporting and presentation standards applicable to non reporting entities in relation to non-compliance with financial reporting presentation and Australian Accounting Standards.

Mr Kelly

Mr Kelly signed unqualified audit opinions in connection with various entities within the Westpoint Group for the financial year ended 30 June 2004. As a result of its investigations, ASIC formed a view that the audits of the entities conducted by Mr Kelly were inadequate and failed to comply with Australian Auditing Standards. ASIC's concerns in relation to the audits included:
failure to obtain sufficient appropriate audit evidence in connection with cash flow forecasts and carrying value and classification of receivables, being audit evidence on which the going concern assumption was based;
failure to consider the importance of the effect of continued fund raising through promissory notes subsequent to balance date and up to date of signing of the audit report that were in excess of the amount specified in the relevant information memoranda; and
failure to obtain sufficient appropriate audit evidence in connection with actual costs to date and estimated cost to complete, revenue and profit with respect to a development project.

Mr Robinson

Mr Robinson was engaged by Westpoint Management Limited to audit compliance with the compliance plans of three managed investment schemes, for which it was the Responsible Entity, for the financial year ended 30 June 2004. Mr Robinson issued unqualified audit opinions in respect of the compliance plans for each of those schemes for that financial year. ASIC's primary concerns in respect of the audits of the compliance plans, were that Mr Robinson failed to comply with Australian Auditing Standards and that Mr Robinson should have identified that there were material breaches of the compliance plans, and on that basis included an 'except for' opinion in the audit report. The most significant of the breaches contended by ASIC to be material were:
(a) late payment of distributions to members;
(b) late lodgement of financial statements and auditors' reports; and
(c) failure of the Compliance Officer to produce requested and necessary information to the Compliance Committee to enable issues of compliance to be properly considered.
Further, ASIC was concerned that there were a number of respects in which Mr Robinson failed to obtain sufficient appropriate audit evidence of matters and failed to properly document his audit work.

BACKGROUND INFORMATION

The Westpoint Group collapsed in January 2006 with losses of more than $300 million. The Group promoted investments in a number of property development projects, including 10 projects using unsecured mezzanine finance (a form of fund raising that covers the difference between available bank finance and the cost of the project).
It created mezzanine companies for each of these projects and raised funds for the projects through the issue of mezzanine investment products such as promissory notes. The investors in Westpoint-related financial products had an outstanding total capital invested of $393 million when the Group collapsed. Liquidators and administrators of the various entities have estimated total amounts available for distribution to investors in respect of a limited number of the entities of $64 million.
ASIC has taken various steps to recover funds for the benefit of Westpoint investors. https://westpoint.asic.gov.au/

 

 

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