UPDATE 1-KPMG to be investigated over BAE Systems audits

* Audits from 1997-2007 to be probed by UK regulator

* Operations of BAE’s offshore firms to be scrutinised

* BAE shares down 1.2 pct

(Adds KPMG, BAE, analyst comment, shares, details)

By Rhys Jones and Mohammed Abbas

LONDON, Oct 26 (BestGrowthStock) – KPMG [KPMG.UL], one of the
world’s biggest accountancy groups, is being investigated by UK
regulators over its audits of BAE Systems (BAES.L: ) relating to
commissions paid by the defence firm to secure contracts.

Audits covering the 10 years between 1997 and 2007 will be
investigated, as well as “commission payments paid by BAE”,
Britain’s Accountancy and Actuarial Discipline Board (AADB) said
in a statement posted on its website on Monday.

“The AADB has begun an investigation under its accountancy
scheme into the conduct of KPMG Audit plc as auditors to BAE
Systems plc,” the regulator said.

Europe’s largest defence contractor in February reached a
deal to pay about $450 million in fines to settle long-running
corruption investigations in the United States and Britain over
payments made to clinch arms deals.

A KPMG spokesman said “the firm does not believe there has
been any act of misconduct” and that “it will be cooperating
fully with the AADB to ensure that the matter is brought to a
swift conclusion.”

AADB said it would investigate KPMG’s advice to BAE on the
operations of three of its offshore companies, Red Diamond
Trading, Poseidon Trading Investments and Novelmight.

“The regulator is looking specifically at the audit of
commissions paid by BAE to outside agents, any tax advice given
by KPMG on commission payments and the status of three offshore
companies linked to BAE … penalties could include an unlimited
fine for KPMG,” said Credit Agricole analyst Thomas Mesmin.

The fines ended years of corruption investigations by
Britain’s Serious Fraud Office and the U.S. Department of
Justice into BAE deals to sell Tornado fighter jets to Saudi
Arabia and radar systems to Tanzania.

“The AADB has not indicated to BAE Systems that it has any
basis for reaching a view that there is any material inaccuracy
in any of the company’s accounts,” BAE said in a statement.

Shares in BAE, which have risen 12 percent in the last three
months, were 1.2 percent down at 350.10 pence by 0820 GMT,
underperforming the broader market and valuing the company at
around 12.2 billion pounds ($19.20 billion).

(Editing by Erica Billingham)

($1=.6353 Pound)

UPDATE 1-KPMG to be investigated over BAE Systems audits