The Public Company Accounting Oversight Board (PCAOB) in the US has found deficiencies in five out of ten audits conducted by KPMG Canada.
In a recent 21-page report, the US audit watchdog indicated a 50% deficiency rate, which is a notable increase from the 44% identified in the previous inspection cycle.
Firms outside the US that audit US-traded companies are subject to these inspections under the Sarbanes-Oxley Act.
The report also raised red flags regarding auditor independence, citing ten instances across three engagements that could potentially impair the firm’s objectivity.
KPMG Canada is a member of the Big Four accounting firms, auditing numerous publicly traded companies in Canada and the US.
The report scrutinised ten audits from 2023 and highlighted issues in sectors such as health care, financials, materials, and information technology.
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By GlobalDataThe regulator primarily examined revenue and related accounts while also reviewing long-lived assets and business combinations.
A recurring issue was the inadequate review of work done by specialists, either from the audited companies or within KPMG itself.
In 2023, under the leadership of PCAOB chair Erica Williams, the board introduced a new section in its reports focusing on auditor independence and transparency. This change has already led to the censure of an accounting firm by the Canadian Public Accountability Board.
KPMG Canada disclosed 32 instances where its independence might have been compromised, spanning across 14 issuers. The PCAOB identified further concerns in ten audits, with an additional two audits showing potential non-compliance issues.
The report said: “Of these instances, nine related to investments in audit clients and one related to an other financial relationship with an audit client.
“Four of these financial relationships were instances where a partner in the firm’s chain of command had a financial relationship with an audit client, and three of these financial relationships were instances where a partner in the same office as the engagement partner for an issuer had a financial relationship with that issuer. Three of these instances related to a member of an engagement team.”
On 9 February 2023, the PCAOB’s inspection revealed nearly a 50% deficiency rate in nine KPMG Canada audits.
