SAN FRANCISCO — California regulators are seeking disciplinary action against the accounting firm KMG Main Hurdman, but the move should not jeopardize the California activities of its new partner, Peat, Marwick, Mitchell & Co, a spokesman for the world's largest accounting firm said Wednesday.
"It is the opinion of our legal counsel that this in no way affects the activities of Peat, Marwick in California," Peat, Marwick spokesman John Higgins told Reuters.
"The action was brought against Main Hurdman on March 31, its last day of doing business before the merger," Higgins noted. "It is the opinion of our legal counsel that Peat, Marwick will continue to operate in California under the Peat, Marwick certification."
KMG Main Hurdman merged last week with Peat, Marwick, Mitchell of New York to become the world's largest accounting firm. Peat, Marwick's revenue in 1986 stood at $1.3 billion.
California regulators are seeking disciplinary action ranging from censure to revocation of the San Francisco-based firm's license to do business in California. The action stems from a 1985 audit of Technical Equities Corp., an investment firm that filed for bankruptcy last year.
The Peat, Marwick spokesman said: "We were aware that there were certain legal matters and we did a fairly careful investigation. We saw no reason not to go ahead with the merger."
A spokeswoman for the California Board of Accountancy, which certifies public accountants and firms in the state, said Tuesday a six-page complaint was filed against Main Hurdman, which had about 400 partners and a work force of 3,800 to 4,000.
"We basically charged that the Technical Equities audit was not conducted in accordance with generally accepted auditing standards," Della Bousquet, executive officer for the board, said.
She said a hearing probably would be held before an administrative law judge within three months.
Bousquet said the company was accused of not properly investigating financial transactions and of issuing a favorable opinion in August 1985 that relied on misrepresentations of Technical Equities management.
She said the accounting firm, although aware of Technical Equities' severe cash flow and liquidity problems, was accused of not performing a proper audit of it.
The complaint named four individuals, including two partners and two audit managers.
Technical Equities, based in San Jose, filed for protection under Chapter 11 of the bankruptcy laws in February 1986, listing debts of $69.7 million to 1,068 investors. Many of the investors were prominent sports and broadcasting figures.