The US Public Company Accounting Oversight Board (PCAOB) found problems in half of the audits it inspected from KPMG US in 2017, as well as almost half of inspections the year before.
The most common failures in its 2017 inspections included a failure to sufficiently test the design and/or operating effectiveness of controls that included a review element (found in 17 audits) and a failure to identify and test any controls that addressed the risks related to a particular account or assertion (found in 13 audits)
The PCAOB warned against drawing wide conclusions about the frequency of deficiencies through KPMG US’s practise as inspections focussed on riskier work.
At the same time, the PCAOB releases expanded reports into KPMG US from 2014 and 2015. In their inspections, the PCAOB assess a firms system of quality control related to issuer audits. Any criticisms or discussions of defects or potential defects remain private so long as the firm addresses these criticisms to the Board’s satisfaction within 12 months.
On Friday the PCAOB said KPMG had not addressed all of the quality control issues to the satisfaction of the Board in this time frame for its 2014 and 2015 reports, and released the expanded reports.
In a written response attached to the expanded reports, KPMG US chairman and CEO Lynne Doughtie and vice chair of audit Frank Casal admitted they agreed with the PCAOB’s determination.
They said: “We take seriously our failure to timely address these criticisms. Notably, during a significant portion of the applicable period, remediation efforts were being led by individuals who engaged in conduct that undermined the integrity of the regulatory process through their inappropriate used of PCAOB confidential information.”
KPMG said upon learning this it had taken remedial actions and informed the PCAOB and Securities and Exchange Commission.
They added a new leadership team appointed over the past 18 months, as well as improvements to its governance code make clear the firm was continuing its commitment to improve audit quality.