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KPMG braces for regulator’s blow

New York, Jan. 23 (Reuters): KPMG on Wednesday said US. regulators plan to file a lawsuit in federal court against the accounting firm over its audit of copier maker Xerox Corp., which restated more than $ 6 billion in revenues last year after being accused of employing accounting tricks. The likely charges are another blow to the accounting firm which, along with the rest of the accounting profession, is looking to put behind it the crisis in the auditing profession spurred by the collapse of Enron and Andersen.

In a statement, KPMG said it learned the SEC may file the complaint against the firm, three current partners and one former KPMG partner in connection with its audit of Xerox’s financial statements over the period stretching from 1997 to 2000.

The SEC declined to comment on the matter.

The accounting firm, which was fired by Xerox in October 2001, said it stood behind its audit of Xerox’s financial statements and that it was “astonished” that the SEC would bring such charges against it.

The issue at hand stems from how Xerox accounted for leases, which KPMG says it still believes was appropriate.

The SEC, on the other hand, accused Xerox of using accounting tricks to accelerate recognising revenue and beat Wall Street expectations. In settling those charges with the company in April, the SEC levied a record $ 10 million penalty and forced Xerox to restate its financial statements, which ultimately resulted in a reclassification of more than $ 6 billion in revenues.

KPMG, meanwhile, argues that it stood up to Xerox over other accounting issues and refused to sign off on the company’s 2000 results until an independent investigation was completed. It also said that investigation found that the fundamental lease accounting methods used by Xerox complied with accounting rules and that the copier maker’s restatement later represented an “about-face” by the company.

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