On August 26,2010;  a New Jersey appeals court found sufficient evidence that KPMG was negligent in its audits of the books of Papel Giftware Inc. KPMG audited the books of the ceramic company, the acquirer, Cast Art Industries LLC., and its financial backers relied on these audit reports to buy the company. Had KPMG done a better job, the audit should have uncovered vast fraud and irregularities, and definitely would have made the aquirer think twice about making the purchase.

In preparation for its 2000 merger with Cast Art Industries LLC, Papel Giftware Inc. retained KPMG to audit its books for 1997 through 1999.After the merger, Cast Art’s officials discovered that Papel had overstated its revenues and sales. Two years after Cast Art bought Papel, it went under, largely because of the debt it incurred in purchasing the company that was worth little or nothing.
The question is whats the purpose of getting books audited if you cant rely on it to make business decisions. The company went under because they relied on KPMG’s audit report. Auditing the company’s financials, isn’t that what KPMG was supposed to do?