Fired audit firm warned Avant!

After KPMG was let go, it wrote a letter to SEC faulting bookkeeping

May 10, 2001|By BLOOMBERG NEWS

FREMONT, Calif. - Avant! Corp. fired KPMG LP after the nation's third-largest accountant warned that the software maker lacked the ability to detect inaccuracies in its own financial reports.

Avant! fired KPMG on April 13, just 11 days after the company filed its annual report with the Securities and Exchange Commission, according to an SEC filing yesterday.

KPMG signed off without reservations on the 2000 financial statements for the maker of software used to design computer chips.

But on April 23, KPMG notified the SEC that it had warned Avant!'s audit committee about the "ineffectiveness of internal controls" found during its 2000 audit. The letter was filed with the SEC by Avant! on April 24.

Clayton Parker, an Avant! spokesman, denied a connection between the warning from KPMG and the accounting firm's dismissal. "Any organization that has seen our growth will have conditions that are not 100 percent perfect," said Parker. "Their departure was purely for business reasons."

Robert Zeitlinger, a KMPG spokesman, declined to comment on the letter, because of client confidentiality.

In its letter to the SEC, KMPG said that, because it considered the deficiencies serious enough to be "reportable events," it brought them to the attention of Avant!'s board of directors.

Avant! had previously said there were "no reportable events" over the past two years.

Reportable events are defined by the American Institute of Certified Public Accountants as "significant deficiencies in the design or operation of internal control which could adversely affect the organization's ability to record, process summarize and report financial data consistent with the assertions of management in the financial statements."

Avant!, which replaced KPMG with PricewaterhouseCoopers LLP, delayed announcing its year-end earnings by two weeks until Feb. 13, explaining that it was "still in the process of completing its year-end audit."

KMPG said its 2000 audit found that Avant! had ineffective "internal controls associated with recording revenue, which resulted in numerous errors throughout the year."

In its 1999 audit, KMPG found "incomplete and missing contract documentation, inadequate internal communications in connection with recording revenue on complex contracts and the lack of timely and accurate account reconciliations."

Chief Executive Officer Gerald C. Hsu and several other Avant! employees are scheduled to go on trial Monday in a California state court on charges that they stole secrets from a competitor.

On March 29, Avant! agreed to pay $47.5 million to plaintiffs in two class action lawsuits related to the alleged corporate espionage. In its annual report, the company said it has spent $32.8 million on lawyers fees over the past three years defending itself against the accusations.

Avant shares fell 49 cents yesterday to $16.10.

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