KPMG USA has been fined by the USA SEC $6.2m over audit failures of an oil and gas company whilst PwC has paid a £5.1m (USD $6.5m) fine to the UK FRC after a settlement over the audit failure of RSM Tenon Group.
The Securities and Exchange Commission (SEC) announced that KPMG USA agreed to settle the charges over failing to properly audit the financial statements of oil and gas company Miller Energy. An unqualified audit report was issued despite grossly overstated values for key oil and gas assets which resulted on investors being misinformed about the company’s value.
KPMG USA’s engagement partner John Riordan in charge of the audit also agreed to settle charges against him as he failed to assess the risks associated with the client and did not properly staff the audit. He is suspended for a minimum of two years until the SEC say he can apply for reinstatement. Both KPMG and Riordan should have raised serious doubts about the company’s valuation and they failed to detect fixed assets that were double counted, said the SEC. Miller Energy was charged with accounting fraud in 2015 and later settled the charges.
PwC were fined £6m which was reduced to £5.1m after a settlement discount over the audit of financial statements of RSM Tenon Group for the financial year ending June 2011, on top of a reprimand of £500,000 for Counsel costs. This comes as a formal complaint was issued by the FRC Executive Counsel last December over their conduct.
Both PwC and Institute of Chartered Accountants in England and Wales (ICAEW) member Boden admitted that they both failed to obtain sufficient audit evidence and failed to exercise sufficient professional scepticism.
The misconduct included five acts in relation to audit areas; accrual of bonus payments, recognition of work in progress and amounts recoverable on contracts, accounting for a lease, the assessment of impairment of goodwill and the calculation of goodwill relating to a subsidiary. Boden had his £150,000 fine reduced to £114,750 after an adjustment for mitigating factors and settlement.