KPMG Australia Faces Parliamentary Scrutiny Over Misuse of Client Confidentiality

Market Snapshot

By Lin Lin

ASX 200: -0.98% to 8,825 points

Australian dollar: -0.04% at 70.11 US cents

Wall Street: Nasdaq (+1.9%) to 26,517, Dow Jones (+0.14%) to 51,565, S & P 500 (+1.1%) to 7500

Europe: FTSE 10,399 (-1.04%)

Spot gold: -0.6% to $US4,185/ounce

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Prices current as at 10.20am AEST.

'I'm not a bad apple': Former KPMG Australia CEO

By Jason Dasey

Former KPMG Australia CEO Andrew Yates has joined Julian McPherson, KPMG's National Managing Partner of Audit & Assurance, in answering questions at the parliamentary inquiry in Canberra.

"I'm not a bad apple," Mr Yates, who resigned from his role last month.

He's speaking about how a whisteblower revealed explosive allegations that KPMG Australia was misusing confidential information from its client, Lendlease.

"I thought my team were conducting themselves in the right way

"On reflection, those things haven't worked as I thought they would.. we didn't get it right."

"I don't think we made the whisteblower feel comfortable in the process."

Senator Peter Scarr exploded when he heard that description.

"The whisteblower has seen an horrendous personal and career cost," he said.

Mr Yates continued on the theme of bad apples.

"With respect, you asked me if I'm a bad apple. I don't believe across my career of 36 years I was a bad apple. Nor do I feel that KPMG is full of bad apples. I'm incredibly proud of the 9,000 people that work at KMPG and it's been a big thing for me to resign and move on from on organisation that I joined in 1989."

Yates a news-avoider

By Daniel Ziffer

Who can blame him?

Deposed KPMG Australia CEO Andrew Yates is answering questions.

Last week Brambles (former Qantas) chair John Mullen made a defence of KPMG in the Financial Review. Essentially it was along the lines of the biblical phrase: 'Let he who is without sin cast the first stone'.

Senator Deborah O'Neill asks for his response to Mullen.

Yates hasn't read it.

Isn't aware at all.

"I have not been reading the media for the past three weeks" he says.

Virgin extends travel date for expiring COVID-19 flight credits after criticism

By Lin Lin

Virgin Australia has extended the travel deadline for customers with remaining COVID-era flight credits after facing criticism over its expiry policy.

Customers must still redeem eligible credits by June 30, but can now use them for flights departing through to late May 2027.

Around $93 million worth of credits remain unused.

You can read all the details here.

KPMG hearings back underway, with blockbuster witnesses

By Daniel Ziffer

There are more than 3,200 people watching the live feed of the Joint Committee on Corporations and Financial Services as it returns from a short break.

In the next two hours (!) they intend to get through this laundry list of KPMG bigwigs

Martin Sheppard, Chairman

Stan Stavros, Interim Chief Executive Officer

Carmel Mortell, Deputy Chair

Eileen Hoggett, Former Chief Operating Officer

Paul Rogers, Real Estate Audit and Assurance Partner

Suzanne Bell, Audit Partner

Louise Capon, General Counsel

James McClelland, Executive Director

Dorothy Hisgrove, National Managing Partner, People & Inclusion

Andrew Yates, Former Chief Executive Officer

Julian McPherson, Former National Managing Partner of Audit & Assurance

Scott Guse, Interim Head of Audit

And from KPMG International

Anne Collins (via videoconference), Global General Counsel

Gary Wingrove (via videoconference), Chief Operating Officer

Expect a focus on Sheppard, Hoggett and Yates

ASX weighed down by miners and energy stocks

By Lin Lin

The ASX is continuing to fall in the opening minutes of trade. Now lower by more than 0.9%.

Basic materials, utilities and energy sectors are performing the worst.

BHP, one of the largest companies on the ASX, has fallen by more than 3% following its after market announcement of a $US2.3B writedown as costs surge for its potash project.

Meanwhile, here are some of the top performers. Zip has risen by close to 6%

Underwhelming evidence from accountant's body

By Daniel Ziffer

The Chartered Accountants Australia and New Zealand (CA ANZ) has just wrapped up, most of it focusing on the evidence of CEO Ainslie van Onselen and group executive general counsel and corporate assurance Vanessa Chapman.

Mrs van Onselen frequently spoke over the Senators questions, reading from notes, something that scored her multiple rebukes for failing to answer questions.

Liberal Senator Paul Scarr got on an absolute tear towards the end, as the dichotomy between two things got beyond credulity:

How serious client confidentiality is, as both CA ANZ and the Committee agree

How little they appear to have known about it and done about it.

He really got going, discussing how the tens of thousands of accountants doing good ethical work must be disgusted:

"[KPMG] CEO gone, head of audit gone, senior audit gone ... It's failed hasn’t it? These are your members! There should be a revolution in the streets! This has failed, systemic failure"

And a reminder, former PwC CEO Tom Seymour was fined $25,000 by the organisation, having increased fines.

Seymour earned $4.6 million in 2021-22.

ASX off to a weak start

By Lin Lin

ASX200 has fallen 0.83% at the open to 8836 points.

The All Ordinaries similarly lower by 0.82% to 9054.

I will have more updates shortly!

'It is a breach of the code': Senator O'Neill

By Jason Dasey

Senator Deborah O'Neill is trying to pin down Chartered Accountants Australia New Zealand (CA ANZ) at the parliamentary hearing into the conduct of KPMG Australia.

She's asking if KMPG violated its professional obligations when it allegedly used a client's confidential information to bid for new contracts.

Senator O'Neill was asking questions to Vanessa Chapman, Group Executive General Counsel and Corporate Assurance at CA ANZ.

"Isn't it is a breach of the code ... disclosing confidential information that the client didn't even know until my speech in the Senate?" Senator O'Neill asked.

"Absolutely," Ms Chapman replied.

"This is entirely clear and basic, this is 101 client confidentiality in its foundations to trust in audit and professional services ... it is explicit and unambigous that members shall not use confidential information."

The hearing is now taking a break until 10:15am, with KPMG Australia up next.

Now, that should be explosive stuff!

BHP potash project blowout raises concerns

By Lin Lin

Barclays says BHP’s giant Jansen potash project in Canada has become more expensive and less profitable than expected.

The bank's said that Stage 2 have jumped 42 per cent, from US$4.9 billion to US$6.9 billion, with BHP now set to take a US$2.3 billion writedown, or US$2.1 billion after tax.

Barclays says the blowout reflects weaker contractor productivity, more construction hours and higher materials costs.

The concern is not just the extra money. Barclays says the overruns at Jansen raise broader questions about BHP’s ability to deliver its pipeline of major growth projects on time and on budget.

It estimates total cash committed to Jansen has now reached about US$20.3 billion, while expected returns have fallen.

For the combined Stage 1 and Stage 2 project, Barclays estimates a 7.1 per cent post-tax return based on total project spend.

Barclays trimmed its valuation and price target slightly, by less than 1 per cent, to £2750.

'CA ANZ has failed': Senator Peter Scarr

By Jason Dasey

It's getting feisty in the parliamentary hearing into the conduct of KPMG Australia in Canberra.

First, Senator Deborah O'Neill had to shut down Ainslie van Onselen, CEO of Chartered Accountants Australia New Zealand (CA ANZ), when she was addressing the parliamentary hearing, accusing her of not answering the question.

CA ANZ is being accused of not reining in its members who are accused of misconduct.

"Do not speak for the moment... do not speak over the senators and members," Senator O'Neill said.

Then Senator Peter Scarr said CA ANZ had "failed".

"Egregious breaches are occurring involving systemic failure," Senator Scarr said.

Miss van Onselen disagreed, saying that the representative body was doing as much as it could to ensure its members were following the rules.

First blowout of the day

By Daniel Ziffer

There are an astonishing amount of witnesses to get through today... at least 38.

And that includes the recall of KPMG Australia and KPMG International staff later in the day.

There was meant to be a break now at 9:30am and we're blowing through that. Going to be a long day!

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Fines aren't a deterrent for misconduct by accountancy firms: O'Neill

By Jason Dasey

Senator Deborah O'Neill has referenced a previous scandal related to a big four firm, as KPMG Australia's conduct is investigated by the parliamentary hearing.

Former PwC Australia CEO Tom Seymour resigned in 2023 over a massive government tax leak scandal, but was fined a mere $25,000 by Chartered Accountants Australia New Zealand.

Senator O'Neill said it was a laughable amount, given the struggles of everyday Australians.

But Ainslie van Onselen, CEO of Chartered Accountants Australia New Zealand, says her organisation is a private membership body that is powerless to inflict punitive fines.

Accountancy body 'concerned' that KMPG didn't call

By Jason Dasey

Senator Deborah O'Neill asked Chartered Accountants Australia New Zealand about how it interacted with KPMG Australia when the allegations unfolded that the big four fim misused confidential information of its client, Lendlease.

Ainslie van Onselen, CEO of Chartered Accountants Australia New Zealand, revealed that she wasn't kept in the loop by KPMG Australia CEO Andrew Yates, who resigned last month,

O'Neill: "Does it concern you that Mr. Yates didn't bother to call you?"

Van Onselen: "Yes it does, Senator."

O'Neill: "What does that say about the culture of KPMG?"

Van Onselen: "What I think it says in relation to the individuals involved who were partners of KPMG, it's extremely serious conduct and I'm disgusted by it. It's basic 101 stuff. So in terms of ethics principles, Confidentiality of documents is 101."

KPMG re-cap: Lendlease 'they shouldn't have done that'

By Daniel Ziffer

We've just heard from Lendlease CEO Tony Lombardo and chair John Gillham.

The construction giant has used KPMG to audit the books for 68 years. This scandal kicked off because confidential information from the company was misused by the consulting firm to try and win more work from other big companies.

Some of the key elements:

A failure of trust, according to Lombardo "They shouldn't have done that".

"Trust is crucial"

Chair John Gillham expanded:

"We've already taken a formal decision to change auditors. ... the question of trust is an interesting one. The capital markets, the debt markets, they all rely on [trusted information] ... it's right at the heart of how we act, this is a very disappointing set of circumstances."

They are stuck with KPMG to do this audit and probably the half-year one as well:

Gillham again:

"There's disruption and additional cost. There are thousands of good people in KPMG, let's be clear about that ... what's apparent is a few very senior people had a grave misuse of confidential [information]."

No-one in the current Lendlease audit is "anywhere near" the allegations of investigation, he says.

Finally, Lendlease has asked for more detail about the scandal and been denied. It wants documents relating to just itself, but KPMG is claiming 'legal professional privilege' for documents about Lendlease.

Lombardo: "They have not shared with us the documentation…"

Senator: "They denied you?"

Lombardo: "Yes Senator we have asked that question and they have denied"

BHP warns potash project in Canada will cost much more than first expected

By Lin Lin

The mining giant now expects total investment for Stage 2 to be US$6.9 billion, up from its original estimate of US$4.9 billion. It will start producing towards the end of 2031.

In a release issued after markets closed yesterday, BHP said the increase is mainly due to inflation in construction labour and materials, as well as a more detailed review of the project's scope and schedule.

BHP says it still expects the project to deliver long-term value, with Jansen Stage 2 forecast to produce about 4.36 million tonnes of potash a year once ramped up.

But the higher costs mean BHP expects to take an impairment charge of about US$2.3 billion on its investment in the project.

'Unauthorised access is very concerning'

By Jason Dasey

Next up at the parliamentary hearing are four representatives of Chartered Accountants Australia New Zealand.

Its chief executive officer Ainslie van Onselen says the organisation is "very deeply disappointed and frustrated" at the alleged behaviour of KPMG Australia.

She says confidentiality of audits is "non negotiable" and "unauthorised access is very concerning", adding she is "disgusted".

Ms van Onselen added that 12 active investigations were underway, including three that came from self reporting by KPMG partners .

'Documents were misused': Lendlease

By Jason Dasey

Lendlease CEO Tony Lombardo was asked at the parliamentary hearing about his current view of the culture and ethics of KPMG Australia.

"It's disappointing to be in this sitatuion to have documents that were misused," Mr Lombardo said.

"We had a trusting relationship with our auditor, but this creates a lot of questions."

Earlier, chairman John Gillam was probed about allegations that KPMG breached trust and confidentiality.

"I think we had the same expectation as any company of its auditor that they will do their job to the best of their professional abilities, and they will observe, without fail, the confidentiality that they are of the access to the books and records that they must have," Mr Gillam said.

Wall Street closes the shortened trading week in the green

By Lin Lin

Housekeeping note that US markets will be closed on Friday for the Juneteenth holiday.

That means Wall Street has wrapped up what has been a consequential week for markets as investors processed Middle East developments and a hawkish pivot from new Federal Reserve chair Kevin Warsh.

US stocks closed out the week in positive territory. The S & P 500 gained 0.9% for its 11th week in the green from 12. The Dow Jones advanced 0.7% for the week, while the Nasdaq jumped 2.4%.