Accounting giant KPMG avoided a prospective death knell Monday by agreeing to pay USD 456 million to settle charges that it promoted fake tax shelters, with the specter of Arthur Andersen hanging over its head.

Criminal indictments also were filed next to eight former KPMG executives, but the firm itself runaway a criminal charge. The conclusion was applauded by outside observers, who said it was tough adequate to deject misbehavior while still preserving one of the four remaining major inspection companies.

Tanina Rostain a law professor at New York Law School who has studied the KPMG case said, “these firms are pretty unique in their ability to audit Fortune 500 companies, we need a convinced number of them around”.

U.S. Atty. Gen. Alberto R. Gonzales acknowledged at a news conference in Washington that prosecutors have to consider the “security consequences. Gonzales said the conclusion with KPMG “reflects the reality that the confidence of an organization can affect innocent workers and others associated with the organization and can even have an impact on the national economy.”

Prosecutors were criticized that their actions, although aimed at abuses by a relative handful of people, demolished a whole company.

Moreover, the U.S. Supreme Court on May 31 generally overturned Andersen’s certainty on obstruction of justice. The high court said the trial judge was wrong to agree to the government’s request to lower the standard of proof needed for a responsible verdict.

The deal accepted Monday calls for KPMG to pass a series of reforms and to be overseen by an outside monitor, Richard Breeden, a former Securities and Exchange Commission chairman who filled a like role at WorldCom Inc. after its accounting scandal.

In a statement Monday, KPMG said that it regretted its “past tax practices” and that it had “learned much from this experience.”

Professor Rostain and others pointed out notable differences between the actions of KPMG and Andersen. KMPG executives, for example, were never accused of destroying documents.

The Andersen investigation centered on allegedly improper auditing of a leading public company, which could have harmed countless investors who relied on the accuracy of Enron’s financial statements. The several hundred tax shelters at the heart of the KPMG case, by dissimilarity, did not have as wide an effect.

In conclusion, whereas Andersen contested the government’s charges throughout the investigation, KPMG, after initially battling prosecutors, eventually capitulated by admitting to shocking activity.
Lynn Turner said “Before they got themselves into a death spiral, they realized they had to make changes”.

The settlement involves a so-called deferred prosecution, in which the government charged KPMG with a single count of conspiracy to commit tax fraud but agreed not to follow up with an indictment as long as KPMG abided by the settlement and refrained from further wrongdoing. The charge would be dismissed by the end of next year if the firm complies.

The eight former KPMG employees who were indicted included Deputy Chairman Jeffrey Stein and seven other tax executives, as well as an outside attorney who advised the company.

At last experts said the deal would lead other accountants to be cautious in their practices.