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Worldcom, Parmalat cases inflict damage on auditors

Date: 30 Jan 2004

According to a new report, WorldCom could sue KPMG for bad tax advice and defunct Arthur Andersen for negligent auditing. In addition, industry commentators have said that Grant Thornton has similarly been damaged by the Parmalat scandal.

WorldCom, recently renamed as MCI, was brought down by the revelation of major accounting irregularities in 2002. The report, produced by bankruptcy court examiner Richard Thornburgh, suggests that the company's tax minimisation programme, allegedly based on advice from KPMG, could be challenged by states seeking to recover back taxes. This could lead to a claim from WorldCom that KPMG was negligent in the carrying out of its duties.

KPMG siad that the reports conclusions were wrong. "Our corporate tax work for WorldCom was performed appropriately, in accordance with professional standards and all rules and regulations, and we firmly stand behind it", the company said.

MCI said that it currently has no plans to take action against KPMG, although it is "reviewing and considering" options.

Meanwhile, Grant Thornton has been described as damaged by its associations with the Parmalat scandal by Allan Koltin, the president of PDI Global. "Grant has been billing themselves as the quality alternative to the big four," he said. "Now when Grant's name comes up, people will think Parmalat."

Grant Thornton has said it will vigorously defend itself against charges arising from Parmalat. The company recently expelled its Italian member firm, which had been responsible for the audit of around 20 Parmalat companies.

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