The US Public Company Accounting Oversight Board ‘s (PCAOB’s) latest inspection report on KPMG is critical of the firm’s failure to collect sufficient evidence to arrive at an adequately supported audit opinion, while the US regulator is also concerned about its slow response to addressing quality control issues raised during previous inspections
The PCAOB’s 2013 inspection of KPMG found that 23 of the 50 audits examined were identified as having problems, a deficiency rate of 46% compared to 34% the previous year. The issues highlighted suggested the firm had not obtained sufficient evidence to support its audit opinions or to demonstrate it had tested internal controls effectively. The board also noted instances where there were problems with the firm’s response to the risks of material misstatements.
In a statement responding to the latest PCAOB inspection, KPMG said: ‘We are always mindful of our responsibility to the capital markets, and we are committed to continually improving our firm and to working constructively with the PCAOB to improve audit quality.’
Separately, the PCAOB has now made public previously unreported elements of its inspection reports for KPMG in 2011 and 2012, noting that the firm ‘had not addressed certain criticisms in the reports to the board's satisfaction’.
The regulator said KPMG had not made sufficient progress in tackling the issues it identified within the 12-month timespan allotted for improvements.
The newly published information relates to details of quality control concerns raised during the inspections. In both reports, inspectors said KPMG auditors were too quick to dismiss contrary evidence, or evidence that would contradict a favourable audit opinion.
Inspectors noted that while the firm introduced training to address the matter, the firm should have evaluated the root causes of auditors’ failure to consider contradictory evidence, suggesting teams were reaching tentative conclusions before examining wider evidence.
In a letter included with the reports John Veihmeyer, KPMG chairman and CEO, and James Liddy, vice chair of audit stated: ‘We accept the Board’s determination and take seriously our responsibility to address these matters. We have taken remedial actions with respect to our professionals’ evaluation of contrary evidence. We will take the further actions necessary to address this quality control criticism and will continue to enhance our system of audit quality control.
‘We remain dedicated to evaluating and improving our system of audit quality control, monitoring audit quality and implementing changes to our policies and practices in order to enhance audit quality’
The PCAOB says its inspections are intended to focus on the most difficult, problematic areas of the highest-risk audits, and the regulator cautions against extrapolating inspection results or applying them broadly to the firm’s overall level of audit quality.
Link to latest PCAOB KPMG inspection (ie, 2013, published Sep 2014)
Link to PCAOB KPMG 2012 report
Link to PCAOB KPMG 2011 report
