Nine KPMG global companies sanctioned by PCAOB for quality control breaches

The Public Company Accounting Oversight Board (PCAOB) recently took action against nine companies affiliated with the KPMG global network. The PCAOB discovered that all nine companies had failed to comply with quality control standards required to meet professional norms. These breaches also extended to regulatory requirements and the companies’ internal quality benchmarks. In addition to the inadequate control standards, the companies had deficiencies in monitoring procedures.

PCAOB Chair, Erica Y Williams emphasized the importance of transparency in auditing processes. She stated that it was crucial for investors and audit committees to be aware of where an issuer’s audits were being conducted and by whom in order to make informed decisions. The violations by the KPMG-affiliated companies hindered investors and audit committees from accessing necessary information. It is crucial for firms to take their obligations seriously and ensure complete and accurate communication and reporting.

One of the notable violations included inaccuracies in PCAOB Form AP disclosures concerning the involvement of other accounting firms in audits, particularly in multicountry audit scenarios where multiple parties may be engaged. The lack of transparency impacted investors and audit committees by limiting information about the entities conducting the audits and the extent of work done by each party compared to the signing firm.

Of the nine sanctioned companies, KPMG Australia, KPMG Brazil, KPMG Canada, and KPMG UK were singled out for failing to adequately inform audit committees about the participation of other accounting entities in audits, as required by AS 1301. Furthermore, KPMG Brazil was found to have breached PCAOB Rule 2200 by not reporting certain audit reports on Form 2.

Each company, without admitting or denying the findings, agreed to the PCAOB’s censure and will pay civil penalties totaling $3.37 million. They have also committed to implementing remedial actions to bolster their quality control policies and procedures. Essentially, the PCAOB’s role is to monitor auditors’ compliance with the Sarbanes-Oxley Act, relevant securities laws, and PCAOB and SEC regulations.

This action follows a report by the Brattle Group, which highlighted the impact of constitutional challenges on the PCAOB and the US Securities and Exchange Commission’s enforcement activities concerning auditors in the preceding year.