Two KPMG auditors in the US have been charged for their respective roles in the failed audit of a Nebrasaka-based bank, accused of failing to support management's estimates of fair value and relying on stale information in their assessment of the bank's accounts.
The US Securities and Exchange Commission (SEC) has brought charges against the two, saying their actions resulted in millions of dollars in loan losses hidden from investors during the financial crisis. The bank was finally forced to file for bankruptcy.
The regulator previously charged three other former executives of TierOne Bank - two agreed to settle the charges while the case continues against the third.
Now separately, the SEC has filed against KPMG partner John Aesoph and senior manager Darren Bennett.
According to the SEC, the two failed to appropriately scrutinise estimates of the bank management, relating to loan and lease losses.
The SEC says that due to the financial crisis and problems in the real estate market, this was one of the highest risk areas of the audit. However Aesoph and Bennett are charged with failing to obtain sufficient evidence supporting management's estimates of fair value of the collateral underlying the bank's troubled loans. Instead, they are alleged to have relied on stale information and management's uncorroborated representations of current value despite evidence that management's estimates were biased and inconsistent with independent market data.
They SEC says they also failed to heed numerous red flags when issuing unqualified opinions on TierOne's 2008 financial statements and the bank's internal controls over its financial reporting and they failed to exercise the appropriate professional scepticism and obtain sufficient evidence that management's collateral value and loan loss estimates were reasonable.
Robert Khuzami, director of the SEC's division of enforcement said: 'Aesoph and Bennett merely rubber-stamped TierOne's collateral value estimates and ignored the red flags surrounding the bank's troubled real estate loans.
'Auditors must adhere to professional auditing standards and exercise due diligence rather than merely relying on management's representations.'
A hearing of the matter is to be scheduled before an administrative law judge to determine whether the allegations contained in the order are true and what, if any, remedial sanctions are appropriate.
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