New Issues Are Raised Over Independence Of Auditor for MCI
Worldcom Inc.'s restated financial reports aren't even at the printer yet, and already new questions are surfacing about whether investors can trust the independence of the company's latest auditor, KPMG LLP -- and, thus, the numbers themselves.
The doubts stem from a brewing series of disputes between state taxing authorities and WorldCom, now doing business under the name MCI, over an aggressive KPMG tax-avoidance strategy that the long-distance company used to reduce its state-tax bills by hundreds of millions of dollars from 1998 until 2001. MCI, which hopes to exit bankruptcy-court protection in late February, says it continues to use the strategy. Under it, MCI treated the "foresight of top management" as an asset valued at billions of dollars. It licensed this foresight to its subsidiaries in exchange for royalties that the units deducted as business expenses on state tax forms.
It turns out, of course, that WorldCom management's foresight wasn't all that good. Bernie Ebbers, the telecommunications company's former chief executive, didn't foresee WorldCom morphing into the largest bankruptcy filing in U.S. history or getting caught overstating profits by $11 billion. At least 14 states have made known their intention to sue the company if they can't reach tax settlements, on the grounds that the asset was bogus and the royalty payments lacked economic substance. Unlike with federal income taxes, state taxes won't necessarily get wiped out along with MCI's restatement of companywide profits.
MCI says its board has decided not to sue KPMG -- and that the decision eliminates any concerns about independence, even if the company winds up paying back taxes, penalties and interest to the states. MCI officials say a settlement with state authorities is likely, but that they don't expect the amount involved to be material. KPMG, which succeeded the now-defunct Arthur Andersen LLP as MCI's auditor in 2002, says it stands by its tax advice and remains independent. "We're fully familiar with the facts and circumstances here, and we believe no question can be raised about our independence," the firm said in a one-sentence statement.
Auditing standards and federal securities rules long have held that an auditor "should not only be independent in fact; they should also avoid situations that may lead outsiders to doubt their independence." Far from resolving the matter, MCI's decision not to sue has made the controversy messier.
In a report released Monday, MCI's Chapter 11 bankruptcy-court examiner, former U.S. Attorney General Richard Thornburgh, concluded that KPMG likely rendered negligent and incorrect tax advice to MCI and that MCI likely would prevail were it to sue to recover past fees and damages for negligence. KPMG's fees for the tax strategy in question totaled at least $9.2 million for 1998 and 1999, the examiner's report said. The report didn't attempt to estimate potential damages.
Actual or threatened litigation against KPMG would disqualify the accounting firm from acting as MCI's independent auditor under the federal rules. Deciding not to sue could be equally troubling, some auditing specialists say, because it creates the appearance that the board may be placing MCI stakeholders' financial interests below KPMG's. It also could lead outsiders to wonder whether MCI is cutting KPMG a break to avoid delaying its emergence from bankruptcy court, and whether that might subtly encourage KPMG to go easy on the company's books in future years.
"If in fact there were problems with prior-year tax returns, you have a responsibility to creditors and shareholders to go after that money," says Charles Mulford, an accounting professor at Georgia Institute of Technology in Atlanta. "You don't decide not to sue just to be nice, if you have a legitimate claim, or just to maintain the independence of your auditors."
In conducting its audits of MCI, KPMG also would be required to review a variety of tax-related accounts, including any contingent state-tax liabilities. "How is an auditor, who has told you how to avoid state taxes and get to a tax number, still independent when it comes to saying whether the number is right or not?" says Lynn Turner, former chief accountant at the Securities and Exchange Commission. "I see little leeway for a conclusion other than the auditors are not independent."
Dennis Beresford, the chairman of MCI's audit committee and a former chairman of the Financial Accounting Standards Board, says MCI's board concluded, based on advice from outside attorneys, that the company doesn't have any claims against KPMG. Therefore, he says, KPMG shouldn't be disqualified as MCI's auditor. He calls the tax-avoidance strategy "aggressive." But "like a lot of other tax-planning type issues, it's not an absolutely black-and-white matter," he says, explaining that "it was considered to be reasonable and similar to what a lot of other people were doing to reduce their taxes in legal ways."
Mr. Beresford says he had anticipated that the decision to keep KPMG as the company's auditor would be controversial. "We recognized that we're going to be in the spotlight on issues like this," he says. Ultimately, he says, MCI takes responsibility for whatever tax filings it made with state authorities over the years and doesn't hold KPMG responsible.
He also rejected concerns over whether KPMG would wind up auditing its own work. "Our financial statements will include appropriate accounting," he says. He adds that MCI officials have been in discussions with SEC staff members about KPMG's independence status, but declines to characterize the SEC's views. According to people familiar with the talks, SEC staff members have raised concerns about KPMG's independence but haven't taken a position on the matter.
Mr. Thornburgh's report didn't express a position on whether KPMG should remain MCI's auditor. Michael Missal, an attorney who worked on the report at Mr. Thornburgh's law firm, Kirkpatrick & Lockhart LLP, says: "While we certainly considered the auditor-independence issue, we did not believe it was part of our mandate to draw any conclusions on it. That is an issue left for others."
Among the people who could have a say in the matter is Richard Breeden, the former SEC chairman who is overseeing MCI's affairs. Mr. Breeden, who was appointed by a federal district judge in 2002 to serve as MCI's corporate monitor, couldn't be reached for comment Tuesday.
马威是MCI审计师的恰当人选吗？
WorldCom Inc.重新发布的财务报表尚未正式公布，新的问题就已经浮出水面了。这次的问题是投资者是否信任其新任审计公司毕马威会计事务所(KPMG LLP)的独立性，当然，是否信任经其审计的数据也就很成问题了。
这些疑问缘自部分州税务部门和WorldCom之间尚未解决的一系列纠纷，而这些纠纷又与毕马威采取的一项积极的避税策略有关。WorldCom藉此在1998年至2001年期间将其向州政府缴纳的税项削减了数亿美元。WorldCom现在更名为MCI继续运营，预计将在2月底脱离破产保护。MCI表示将继续采纳这项策略。具体的做法是，MCI将"高级管理层远见"作为一项资产，估值数十亿美元。然后将这项"远见"以特许权的方式发放给各家子公司，而这些子公司为此支付的特许权使用费就被计作"营业费用"，在向州政府缴纳税收时进行扣减。
当然，事情发展的结果证明WorldCom高级管理人员的预见并不高明。公司前任首席执行长伯尼?埃伯斯(Bernie Ebbers)既未预见到公司会发展成美国历史上申请破产保护的规模最大的公司，也未预见到公司会因为虚增110亿美元利润而被查获。至少已经有14个州的税务部门表示，如果不能就税收纠纷达成和解，就会起诉该公司。他们的理由是这是一项虚设的资产，子公司支付特许权使用费的行为当中没有任何经济因素存在。与联邦所得税不同，MCI重新发布财务报表之举并不能抹掉这笔应该向州政府缴纳的税收。
MCI表示，即使MCI要补齐税款、罚款和利息，公司董事会也决定不起诉毕马威，以打消对毕马威独立性的任何担忧。MCI管理人士称，可能会与州政府达成和解，但与此有关的金额不会对公司产生实质性的影响。毕马威于2002年取代安达信会计师事务所(Arthur Andersen LLP)出任MCI的审计公司。毕马威表示，坚持自己就税项科目提出的建议，同时仍然保持其独立性。公司在短短一句话的声明中表示，毕马威充分了解相关事实和情况，坚信其独立性无庸置疑。 审计标准和联邦证券法规长期以来就规定：审计公司不应该只在事实上保持独立，还应该避免陷入令外部人士对其独立性产生质疑的境地。而MCI不起诉毕马威的决定非但没有解决有关的问题，还使问题更加复杂了。
在周一发布的报告中，负责监控MCI依照破产法第十一章接受保护的主管，美国前任总检察长理查德?索恩伯勒(Richard Thornburgh)得出的结论是：毕马威可能由于疏忽向MCI提供了不准确的税项建议；而MCI如果起诉毕马威，寻求收回因毕马威的疏忽而支付的费用及相应损害赔偿的话，MCI很可能会获胜。索恩伯勒的报告指出，在1998年至1999年期间，毕马威就这项引起争议的税收策略收取的费用总额至少是920万美元，但报告并未估算起诉可能寻求的损害赔偿会有多少。
根据联邦法规，不管MCI是真正要起诉毕马威，还是威胁要起诉，都会使后者丧失出任MCI独立审计公司的资格。一些审计行业的专家也表示，作出不起诉的决定也一样会引起争议，因为这会使董事会看起来更关注毕马威的利益，而非MCI股东的利益。而且还会让别人怀疑，MCI是否以此交换毕马威不会阻拦MCI脱离破产保护的努力，或者以此暗中鼓励毕马威此后审计MCI财务报表时高抬贵手。
亚特兰大乔治亚理工学院(Georgia Institute of Technology)的会计学教授查尔斯?马尔福德(Charles Mulford)说，如果前些年的税收返还数目的确有问题，那么公司董事会就有责任为债权人和股东追回这笔钱。如果索赔是合理的，就不应该仅仅为了表示好意，或者为了保护审计师的独立性地位而作出不起诉的决定。
在审计MCI帐目的同时，根据要求，毕马威还应该审核各类与税收相关的帐目。美国证券交易委员会(Securities and Exchange Commission)前任总会计师林恩?特纳(Lynn Turner)说，提议如何规避州政府课税，并得出具体纳税数额的审计师怎么可能在确认这笔数额正确与否时保持独立性呢？由此只能得出相反的结论。 MCI审计委员会主席、财务会计标准委员会(Financial Accounting Standards Board)前任主席丹尼斯?贝雷斯福德(Dennis Beresford)说，MCI董事会是在参考了外部律师的建议，认定MCI没有任何应该向毕马威索赔的事项后，作出不起诉毕马威的决定的。因此，毕马威是有资格出任MCI审计公司的。他说，这项避税策略是"很积极的"，但与其他很多纳税规划一样，并不是简简单单可以用对与错来判断的。他还解释说，这项策略是合理的，同许多人用来合法避税的方式类似。
贝雷斯福德称，他也预计继续聘用毕马威作为公司审计师会引起争议。他说，公司认识到这件事会成为众所瞩目的焦点。但究其根本，MCI会为自己在过去数年间向州政府递交的报税单负责，并不会让毕马威承担责任。
他驳斥了对毕马威审计MCI报表的工作是否会草草收场的怀疑。他说，公司的财务报表中会包含适当的会计科目。他还说，MCI管理人士已经与SEC工作人员就毕马威的独立地位展开了讨论，但拒绝透露SEC的观点。知情人士称，SEC工作人员对毕马威的独立性问题表示关注，但尚未就此确定立场。
索恩伯勒的报告中也没有对毕马威是否应当继续担任MCI审计师的问题表明他的立场。在律师事务所Kirkpatrick & Lockhart LLP任职，与索恩伯勒共同撰写这份报告的律师麦克尔?米萨尔(Michael Missal)表示，他们的确考虑了审计师独立性的问题，但并非必须就此得出结论，这是其他方面的责任。
其他对此事有发言权的人还包括，前任SEC董事长，目前负责监管MCI事宜的理查德?布里登(Richard Breeden)。他于2002年由一家联邦地区法官任命，负责监控MCI的有关事项。但记者周一未能得到他对此事的有关评论。
