• Register
Return to: Home > News > Regulation > PCAOB inspection critical of KPMG US audits

PCAOB inspection critical of KPMG US audits

The US's Public Company Accounting Oversight Board (PCAOB) has condemned the quality of audits carried out by KPMG US in an inspection report published last week.

The review was carried out at 25 out of KPMG's 82 locations across the country, as well as its national office in New York.

The audit oversight body reported major failings in half of the KPMG audits it surveyed. In particular, the PCAOB questioned whether the firm had obtained enough evidence to approve the financial statements as fair for 23 out of the 50 cases considered.

Another audit area the report cast doubt on was the information used by KPMG to confirm the existence of effective internal controls over financial reporting within the audited companies.

"In other words, in these audits, the auditor issued an opinion without satisfying its fundamental obligation to obtain reasonable assurance about whether the financial statements were free of material misstatement and/or the issuer maintained effective ICFR," explains the report.

The PCAOB pointed out that the findings did not allow for conclusions to be drawn on the quality of the original financial statements issued by the companies themselves, but added that KPMG's audit deficiencies were cause for concern.

"Whether or not associated with a disclosed financial reporting misstatement, an auditor's failure to obtain the reasonable assurance that the auditor is required to obtain is a serious matter. It is a failure to accomplish the essential purpose of the audit, and it means that, based on the audit work performed, the audit opinion should not have been issued."

Indeed, many of the cases highlighted several shortcomings, failing to perform effective controls on aspects including mortgage repurchase reserves to loan grading processes.

In the case of the first firm alone, referred to in the report as "Issuer A", the PCAOB found inadequate revenue and accounts controls testing, despite a fraud risk having been highlighted in the area by the audited company itself.

Another area of judgement called into question by the PCAOB was in KPMG's acceptance as reasonable of significant assumptions made by certain firms.

KPMG chairman and chief executive officer John Veihmeyer and audit vice chair James Liddy released a statement in response, saying: "We remain committed to full cooperation with the PCAOB, appreciate the professionalism and commitment of the PCAOB staff and value the important role the PCAOB plays in improving audit quality."

"We have taken remedial actions with respect to our professionals' evaluation of contrary evidence," they said, and added: "We will take the further actions necessary to address this quality control criticism and will continue to enhance our system of audit quality control."

 

Related stories:

PCAOB critical of KPMG and PwC audits

Top Content

    Brazil: regulation and technology form basis for recovery

    Opportunities in the capital markets and the ever-growing influence of technology are expected to have a significant impact on the Brazilian accounting profession over the next 12 months, writes Paul Golden.

    read more

    Mentoring support and the opportunity to delegate

    Jon Lisby will be known to many from his former role as CEO of Kreston International. Here, he explains the background to his new venture, Global Alliance Advisory Services (GAAS), and how he aims to offer support to alliance CEOs.

    read more

    Global by name, global by nature

    Stephen Heathcote became chief executive officer of PrimeGlobal on 1 June 2019. Robin Amlôt met him to discuss the various new challenges that he has taken on, and his ambitions for the association.

    read more

    ARGA team, assemble!

    The new top team has been named that will see in root-and-branch reform at the Financial Reporting Council (FRC) as it transforms into the Audit, Reporting and Governance Authority (ARGA). Will the new duo be as dynamic as some are hoping? Robin Amlôt reports.

    read more
Privacy Policy

We have updated our privacy policy. In the latest update it explains what cookies are and how we use them on our site. To learn more about cookies and their benefits, please view our privacy policy. Please be aware that parts of this site will not function correctly if you disable cookies. By continuing to use this site, you consent to our use of cookies in accordance with our privacy policy unless you have disabled them.