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KPMG’s Reputation

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The impact of KPMG’s reputation over the trading scandal

            The status of KPMG auditing services was more likely than not damaged by the allegation that one of its senior partners provided insider information. That resulted in a conflict of interest in the firm’s ability to give creditable service to its clients and probably the reason it had to withdraw its services to Herbalife Ltd and Sketchers USA Inc. The sharing of trading information placed the ones who wanted to acquire shares of the said company at an undue advantage and probably put the shareholders of the company under threat. The threat here can be said to be that of conflict of interest since the sharing of this information meant the auditing firm KPMG shared information with outsiders hence placing the companies it gave auditing services in a tricky situation. It could be that if the company wanted to sell its shares and potential buyers found damaging information about the companies; they might shy away from it. The people receiving the information could also be competitors of the said firm hence giving them an edge in their competitive advantage over the company.

The reason Herbalife shares fell

            Any scandal can be damaging to a corporation. People lose their trust with it and are unwilling to support its venture. The announcement of KPMG’s withdrawal as an auditing firm for the company and the allegation that trading information was shared could have put the company’s reputation as well in jeopardy. Probably, the potential shareholders and existing shareholders lost trust with the enterprise. The announcement would not only damage the reputation of the auditing firm but also the reputation of other companies associated with it. The shareholders would suspect that something fishy was going on and therefore, would be cautious in trading shares of the enterprise.

Guarding against rogue partners in future

The auditing firm KPMG could prevent rogue partners in the future by drawing stiff legal agreements that would ensure that the consequences of going against any of the ethical obligations would have far-reaching implications for the one who breaches the integrity rule. The agreements should ascertain the independence of the partnering firms as stipulated in AICPA code of conduct.

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