GE's CFO Pick Could Hint at Willingness to Hire a New Auditor
November 26 2019 - 5:49PM
Dow Jones News
By Mark Maurer
General Electric Co.'s decision this week to appoint an outsider
as finance chief is rekindling speculation over whether the company
will end its audit relationship with KPMG that goes back more than
a century.
The Boston-based industrial conglomerate is in the middle of a
transformation effort. The U.S. Securities and Exchange Commission
is investigating GE's accounting practices, alongside the U.S.
Justice Department.
"They're finding outsiders to rejuvenate the process for not
only changing the operations of the company but also the
accountability and verifiability of results," said Nick Heymann, a
William Blair & Co. analyst.
GE said Monday that Carolina Dybeck Happe would take over as
chief financial officer next year. Ms. Dybeck Happe, currently CFO
of Danish shipping giant A.P. Moller-Maersk, would join another
outsider in GE's C-suite: Chief Executive Larry Culp, who took the
top spot in 2018 after years at Danaher Corp.
A new auditor would add credibility to the company's efforts to
uphold agreements with regulators, Mr. Heymann said. He speculated
that GE could name a new auditor as early as March, after GE
reports annual earnings.
Deane Dray, an RBC Capital Markets analyst, also said the
appointments of outside executives increase the likelihood that GE
would move on from KPMG. "They do want a break from the past," Mr.
Dray said, "and what clearer message is there than to make a change
to the auditor?"
"If there's ever going to be a time, this is it," he added.
A KPMG spokeswoman said it is good governance for audit
committees to review their external auditor relationships. "We
welcome the future opportunity to work with all the stakeholders to
demonstrate the value KPMG can continue to deliver," the
spokeswoman said.
GE's audit committee is preparing to formally invite bids for an
independent auditor following completion of its 2019 audit, the
company said in an April regulatory filing.
"The ultimate timing for the process and the appointment of an
audit firm following the tender will be based on the progress
toward completing planned portfolio actions and circumstances at
that time," the company said at the time.
The process could result in KPMG remaining the auditor, a GE
spokeswoman confirmed.
If not, Big Four competitors PricewaterhouseCoopers and Ernst
& Young could be top contenders, said Peter Bible, the chief
risk officer at accounting firm EisnerAmper LLP and a former chief
accounting officer at General Motors Co.
Those firms have expertise in auditing large manufacturers and
financial services companies. PwC, for example, audits Ford Motor
Co. EY audits GM. Representatives for EY and PwC declined to
comment.
But GE has conflicts of interest with those firms and another
Big Four firm, Deloitte Touche Tohmatsu. PwC handles GE's tax work,
and EY is a major lobbyist for GE in Washington. Deloitte provides
certain nonaudit services for GE. Deloitte didn't respond to a
request for comment.
GE said in a regulatory filing last year it planned to adopt new
internal procedures to "mitigate the cost and complexity" of ending
its nonaudit engagements with any firm it retains as its
independent auditor in the future.
The act of switching auditors for a multinational conglomerate
after more than a century would be a massive undertaking.
The new firm would need to firmly grasp how the previous auditor
tested the company's accounting systems and processes, and how they
assessed management's judgment, Mr. Bible said.
The auditor would also need to acquire a deep understanding of
the company's application of tax laws in international markets --
and the employees' accounting methods there, he said. The bigger
and more expansive the company, the more complex and time-consuming
the process becomes.
Shadowing the outgoing firm during the final audit would be key:
"If they go cold turkey," Mr. Bible said, "that'll be very
difficult on the company's internal people."
Write to Mark Maurer at mark.maurer@wsj.com
(END) Dow Jones Newswires
November 26, 2019 17:34 ET (22:34 GMT)
Copyright (c) 2019 Dow Jones & Company, Inc.
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