KPMG’s engagement partner, John Riordan, in charge of the audit has also agreed to settle charges against him.

Without admitting or denying the findings, KPMG agreed to be censured and pay $4,675,680 in disgorgement of all the audit fees received from Miller Energy plus $558,319 in interest and a $1m penalty.  KPMG also agreed to significant undertakings designed to improve its system of quality control. 

Riordan agreed, without admitting or denying the findings, to pay a $25,000 penalty and be suspended from appearing or practicing before the SEC as an accountant, which includes not participating in the financial reporting or audits of public companies. The SEC’s order permits Riordan to apply for reinstatement after two years.

The US regulator said KPMG was hired as the external auditor for Miller Energy Resources in 2011 and issued an unqualified audit report, despite grossly overstated values for key oil and gas assets. 

KPMG and Riordan failed to properly assess the risks associated with accepting Miller Energy as a client and did not properly staff the audit, which overlooked the overvaluation of certain oil and gas interests that the company had purchased in Alaska the previous year.

Among other audit failures identified by the SEC, KPMG and Riordan did not adequately consider and address facts known to them that should have raised serious doubts about the company’s valuation, and they failed to detect that certain fixed assets were double-counted in the company’s valuation.

Walter Jospin, director of the SEC’s Atlanta regional office, said: ‘Auditing firms must fully comprehend the industries of their clients. KPMG retained a new client and failed to grasp how it valued oil and gas properties, resulting in investors being misinformed that properties purchased for less than $5m were worth a half-billion dollars.’

Miller Energy was charged with accounting fraud in 2015 and subsequently paid $5m in settlement of the SEC’s complaint.

The SEC’s order relating to KPMG and Riordan is here.