Big test for ASIC in KPMG prosecution

The Australian Securities and Investments Commission (ASIC) is on the brink of a major legal test of not only its regulatory powers but the role of audit companies, as a result of its announced action against major accountancy firm KPMG over the Westpoint collapse.

The regulator announced late on Monday that it would be pursuing action against KPMG, one of the big four accounting firms, over KPMG’s auditing of companies involved in the Westpoint Group collapse.

The regulator announced on Monday that it had instituted action in the Supreme Court of Victoria against KPMG on behalf of eight Westpoint companies.

It said the action represented the next phase in ASIC’s program to seek to obtain compensation for the benefit of investors.

ASIC said the civil proceedings had been launched under section 50 of the ASIC Act, which enabled the regulator to commence proceedings for damages in the public interest.

The claims are based on alleged negligent conduct by KPMG in respect of audits of the financial accounts of various Westpoint companies for the years ended June 30, 2002, 2003 and 2004 and are in the order of $200 million.

ASIC said the action, if successful, could potentially benefit up to 80 per cent of investors in the Westpoint Group.

Explaining the regulator’s move, ASIC chairman Tony D’Aloisio said ASIC saw a clear public interest in using its powers in the circumstances to pursue compensation for the benefit of Westpoint investors.