EDITORIAL: Telling half-truths is twice the headache

It's hard to remember the days before one heard the word "Enron" within an hour of waking up. On Tuesday, the day this column went to press, there were several mentions of that name, not least the reports of documents showing how the corporate evildoer drove up prices during the California energy crisis, and coverage of the Andersen-Enron court case in Houston.

It's hard to remember the days before one heard the word "Enron" within an hour of waking up. On Tuesday, the day this column went to press, there were several mentions of that name, not least the reports of documents showing how the corporate evildoer drove up prices during the California energy crisis, and coverage of the Andersen-Enron court case in Houston.

Tomorrow: Enron as the cause of male-pattern baldness.

But perhaps it's only a matter of timing that we are talking about Enronitis and Andersen instead of Xeroxitis and KPMG. It was as late as March that the SEC collared KPMG accountant Ronald Safran and marched him to DC, asking him to explain its brandished fistful of questionable internal documents from (now former client) Xerox.

It's the same old story: Client meets auditor, auditor "audits,

client gets rich, auditor gets rich, client and auditor are caught with their pants down. But that's not the way KPMG envisaged the screenplay. It had been troubled, it said, by certain practices that were detailed on Xerox's documents, and refused to approve the annual report, despite warnings from then-chairman Paul Allaire that to do so would be to send Xerox into ruin. But Michael Young, KPMG's attorney, had already called central casting for a white knight. "KPMG are heroes!

he hurrahed, and KPMG effectively blushed, stuck out its hand and said, "It was nothing."

Which, according to the SEC, is exactly what it was. Maybe KPMG had gone part of the way in feting the new transparency in corporate accounting by casting itself in the role of The Auditor That Blew The Whistle On Its Client, and as such, its PR tactics could be commended. But it made the fundamental error of treating this incident in isolation.

Naturally, the SEC took one look at the offending 2001 report, and wondered about the previous three years' reports that KPMG had submitted on behalf of Xerox before Enron and Andersen provided a handy guide on how not to do things. The commission is now labeling the auditors as wimps who wouldn't stand up to a pushy client for those past years, and now shows every sign of using KPMG and Xerox to prove just how tough it can be.

So instead of basking in the anticipated squeaky-clean reputation, KPMG emerged as the worst kind of goody-goody: the kid who hands in his homework on time with a big smile, having swiped it and copied it from his classmate.

And the whole situation was aggravated by KPMG enjoying the attentions of an outside cheerleader - Michael Young - without controlling the message or making sure that it stood firm for the company's practices throughout, rather than this one-off, forewarned situation.

Xerox - "the document company

as it calls itself, which is bound to have caused a few titters recently - clearly has its own issues, but it quietly paid the SEC's $10 million civil penalty last month, and signed a gag order promising not to share its opinions of the commission. KPMG, on the other hand, now deals with all sorts of mini-Enrons (or should that be Xeroxes?), and ill-advised boasting on its heroic practices by either itself or its garrulous attorneys has made it even more worthy of scrutiny.

To paraphrase another disingenuous optimist, Forrest Gump, heroic is as heroic does. KPMG's auditors had best unpeel the underpants from over their tights and start reopening those books.

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