KPMG Says SEC Wrong About Xerox Correction

KPMG Chairman and Chief Executive Eugene O’Kelly, on the job less than three months, said the Securities and Exchange Commission was wrong to force former audit client Xerox Corp. to restate five years of sales.

KPMG’s argument that an SEC interpretation of accounting rules is incorrect marks a rare public clash between a Big Five accountant and its chief regulator, especially since KPMG’s audit work is being investigated by the SEC, accountants said.

Xerox’s restatements of $6.4 billion in revenue between 1997 and 2001, required under a settlement the copier maker reached with the SEC, “defy economic reality” and don’t change KPMG’s view that its accounting for Xerox was correct, KPMG has said.

The refusal by KPMG to admit errors at Xerox reflects the complexity of lease-accounting rules, which are open to different interpretations, and a desire to avoid liability claims from Xerox shareholders whose stock fell from $62 in 1999 to $6 in November last year, lawyers and accountants said.