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KPMG in the firing line for US PCAOB regulatory fines
iStock_GordonBellPhotography_KPMG Canary Wharf

KPMG global firms hit with $7.7m in US audit fines

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US regulators are cracking down on audit deficiencies, including exam cheating within global audit firms, resulting in fines totalling $7.7m for three KPMG subsidiaries.

15th Dec 2022
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KPMG UK has been hit with $2.6m in fines by the US Public Company Accounting Oversight Board (PCAOB) for failing to prevent exam cheating and other shortcomings. The Big Four firm’s Indian and Columbian subsidiaries racked up another $5m in sanctions.

The fines KPMG UK has agreed to pay PCAOB included $600,000 for letting its unregistered Romanian affiliate conduct four consecutive audits of a US public company client. KPMG UK allowed the unregistered Romanian audit firm KPMG Audit SRL to carry out 74% of the total audit hours on its behalf and then incorrectly reported that another Romanian affiliate had done the work. 

Exam cheating fallout

The other $2m of KPMG UK’s PCAOB penalties were part of the continuing fallout from the global exam cheating scandal that came to light during the summer. Without admitting or denying the findings, KPMG UK agreed to pay the $2m fine and review and improve its quality control policies to ensure its staff “act with integrity in connection with internal training”.

PCAOB found that from as early as 2018 until March 2021, KPMG UK failed to adequately oversee training tests designed to help “hundreds” of its audit staff meet their continuing professional development obligations. Audit staff at a joint venture organisation in India, KPMG Resource Centre Private Ltd, were found to have been involved in improper answer sharing on internally run technical courses. 

KPMG UK had a responsibility to monitor staff performance on the tests at the end of these courses, but its procedures were not designed to detect other compliance issues, such as answer sharing, PCAOB found.

Non co-operation fines for KPMG Columbia

By far the biggest element of KPMG’s global bill for audit violations were directed to KPMG Columbia, which not only failed to maintain audit quality and document standards, but was also punished for attempting to subvert PCAOB’s investigations by altering audit documentation. Four individuals who participated in the alleged misconduct were banned from conducting audits for between one and three years, and the one who directed the document alterations received a personal fine of $25,000.

The PCAOB also found that KPMG Colombia failed to identify improper answer-sharing on internal audit exams between 2016 and 2020. A separate review will be conducted to determine the extent of the cheating and recommend remedial actions. 

It’s not the first time that US regulators have imposed sanctions on audit firms outside the USA on the principle that they have jurisdiction over audits of all US-listed companies, wherever the auditors are based. This stance significantly increases the risk of sanctions for multinational audit practices that outsource much of their nuts and bolts audit work.

“The breadth of the misconduct uncovered in these matters and the aggregate size of the sanctions imposed demonstrate the global reach of the PCAOB’s oversight and the board’s heightened vigilance in enforcement,” warned Mark A Adler, PCAOB acting director of enforcement and investigations.

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By Hugo Fair
15th Dec 2022 22:30

"Four individuals who participated in the alleged misconduct were banned from conducting audits for between one and three years, and the one who directed the document alterations received a personal fine of $25,000" ... well that'll larn 'em!

So subverting investigations by altering audit documentation gets you a slapped wrist - incroyable!

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