KPMG sued over Westpoint The corporate watchdog has launched a $200 million legal attack on accountancy giant KPMG over

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KPMG sued over Westpoint The corporate watchdog has launched a
$200 million legal attack on accountancy giant KPMG over the
collapse of property group Westpoint. The Australian Securities and
Investment Commission said it would have shut Westpoint down or
stopped investors pumping in more money if it had been made aware
of its problems by KPMG’s audits. In a 350-page statement of claim
filed in the Supreme Court yesterday, ASIC alleged KPMG had been
negligent, misleading and deceptive when auditing the books of
Westpoint group companies between 2002 and 2004. ASIC’s latest
action takes its total legal claims against parties involved in
Westpoint’s collapse to almost $550 million – compared with the
$300 million owed to investors at the time of its failure in 2005.
It is believed to be the first time ASIC has pursued an accounting
firm using Section 50 of the ASIC Act. KPMG spokeswomen Rebecca
Cook said the accountancy was “disappointed by the action ASIC has
announced” and would “defend itself vigorously”. “KPMG has
co-operated fully with ASIC during its investigation into the
Westpoint collapse since December 2005,” she said. Ms Cook said
KPMG accepted investors had lost substantial amounts of money which
they were keen to recover. “KPMG does not believe that the conduct
of its audits of Westpoint entities caused or contributed to the
collapse of the Westpoint group or to losses suffered by
investors,” she said. ASIC has taken the action in the name of
eight companies in the Westpoint group that raised money for use in
property development. The watchdog says the money was then pooled
in another company, Westpoint Corporation, which also guaranteed
investors’ funds. ASIC alleges that because of the link KPMG should
have taken Westpoint Corporation’s financial state into
consideration when auditing the eight companies. KPMG also audited
Westpoint Corporation. ASIC alleged KPMG engaged in misleading or
deceptive conduct by giving the companies a clean bill of health
instead of qualifying their accounts. It alleged KPMG breached the
Corporations Act in 2002 by not informing on Westpoint’s own
Corporation Act breaches. “Had KPMG made the notification or
notifications to ASIC … ASIC would have taken steps to cause
(Westpoint company) Market Street to cease raising further funds
from the public,” ASIC said. ASIC said that by 2004, “a reasonable
and competent auditor in KPMG’s position” would have suspected some
Westpoint company directors were “dishonestly permitting that
company to incur debts when he or she suspected that the company
was insolvent”. A directions hearing is to be held on November
7.
Required: What issues should KPMG considered during the risk
assessment of Westpoint? (refer to article please).