The Public Company Accounting Oversight Board levied sanctions and fines totaling $7.7 million Tuesday against three of KPMG's member firms in the U.K., India and Colombia over violations including failure to cooperate with a PCAOB inspection, cheating on training exams, signing off on blank work papers, and improper use of an unregistered firm between 2016 to 2021.
The PCAOB posted seven settled disciplinary orders Tuesday sanctioning both firms and individuals from KPMG's global network, accusing them of violating professional auditing standards, quality control standards and PCAOB rules.
Along with the fines, the sanctions include barring or suspending four auditors from participating in public company audits and requiring three KPMG member firms to review and improve as necessary their quality control policies and procedures. One of the sanctioned firms, KPMG Colombia, admitted that it failed to cooperate with a PCAOB inspection. The firm also agreed to retain an independent consultant to recommend improvements in the firm's quality controls with respect to internal training.
"These actions should send the message to KPMG and all other registered firms that the PCAOB is committed to rooting out misconduct wherever it occurs and will employ all sanctions at its disposal to protect investors and improve audit quality," said PCAOB Chair Erica Williams in a statement.
The PCAOB issued two disciplinary orders against KPMG U.K. totaling $2.6 million in penalties.
In one of the orders, the PCAOB sanctioned KPMG U.K. for violating PCAOB quality control standards related to integrity and personnel management. As with KPMG Colombia, KPMG U.K. failed to detect or prevent extensive, improper answer sharing on tests for mandatory internal training courses. From 2018 until March 2021, hundreds of people from KPMG U.K. and KPMG Resource Centre Private Limited, an India-based entity that provides support for KPMG U.K.'s issuer audit work, engaged in improper answer sharing. The improper answer sharing occurred in connection with tests for training courses covering topics that included auditing, accounting, and professional independence. All of the professionals implicated in the answer sharing performed work for KPMG U.K.'s assurance practice. Similar problems have been found in the U.S., which led in 2019 to $50 million in penalties and disciplinary actions taken against KPMG's U.S. firm and some of the leaders there (
Without admitting or denying the findings in the order concerning the improper answer sharing, KPMG U.K. was censured and agreed to pay a $2 million civil money penalty and to review and improve as necessary its quality control policies and procedures to provide reasonable assurance that its personnel act with integrity in connection with internal training.
"I am disappointed that this took place," said KPMG U.K. CEO Jon Holt in a statement. "This kind of behavior is unacceptable at KPMG and will not be tolerated. We took the appropriate disciplinary action with all those involved and have since put additional monitoring measures in place. We are building a culture that is based on our values and I am determined that we work to the highest ethical standards for our clients and the communities we serve."
In a second order, the PCAOB sanctioned KPMG U.K. for failing to reasonably supervise an unregistered audit firm in four consecutive audits of a public company client. Specifically, KPMG U.K. allowed the unregistered Romanian audit firm KPMG Audit SRL to play a substantial role in four consecutive audits in which the Romanian firm worked on up to 74% of the total audit hours. On top of that failure, in three of the four audits, KPMG U.K. erroneously reported that PCAOB-registered firm KPMG Romania SRL, not KPMG Audit SRL, had participated in the audits.
In addition, KPMG U.K. was found to have violated, in connection with the same four audits, PCAOB standards relating to due professional care, audit planning, audit committee communications, and quality control. The PCAOB also found the firm had made several inaccurate filings on PCAOB Form AP for other audit clients, disclosing that registered KPMG affiliates had participated in various audits, when separate, unregistered firms had actually performed the work. The firm has since corrected those Form APs and agreed to review and improve its quality control policies and procedures as necessary.
"We fully accept and have taken swift action to address the PCAOB's findings," said Cath Burnet, U.K. head of audit at KPMG, in a statement. "We've reviewed the way we work with other firms in our network, putting in place enhanced controls and providing additional training to our people."
Without admitting or denying the findings in the second order, KPMG U.K. consented to the PCAOB's order and the disciplinary action. The PCAOB imposed a $600,000 civil money penalty, censure and quality control undertakings.
The heaviest fines were levied against KPMG Colombia, which saw a $4 million penalty, along with a $25,000 penalty against an individual auditor. The PCAOB sanctioned the firm and three of its auditors for violating PCAOB rules and standards in connection with the PCAOB's 2016 inspection of the firm. The PCAOB also charged the firm with violating quality control standards relating to audit documentation and the firm's internal training program.
The PCAOB found that, in 2016, the firm and some of its employees improperly altered audit documentation for two audits in anticipation of a PCAOB inspection, and provided that altered documentation to PCAOB inspectors. The PCAOB also found that from at least 2016 to 2020, KPMG Colombia violated PCAOB quality control standards related to integrity and personnel management. Those failures kept the firm from identifying extensive, improper answer sharing among employees on internal training exams covering topics relevant to compliance with PCAOB rules and standards.
KPMG Colombia is paying a $4 million civil penalty and will be required to undertake remedial actions for its quality control systems. The PCAOB also censured the firm and required it to complete a further investigation under the supervision of an independent consultant to determine the extent of exam cheating among the firm's personnel and to recommend appropriate remedial actions. The three auditors agreed to settlements that bar them from being associated with a registered public accounting firm, but will have the right to file a petition for reinstatement in later years. One auditor agreed to pay a $25,000 penalty, which was reduced in light of his financial resources.
"KPMG Colombia has reached a settlement with the PCAOB regarding this matter," said a KPMG Colombia spokesperson in a statement. "The firm is committed to delivering high quality service to clients and continues to take actions to strengthen its culture, governance and compliance programs."
KPMG India was penalized $1 million by the PCAOB, which also levied $75,000 in penalties against an audit engagement partner. The PCAOB found that, during a 2017 audit, he and other members of the KPMG India engagement team signed off on dozens of blank work papers that were then replaced with completed work papers, in many cases after issuance of the audit report, but the sign-off dates were not updated. As a result, the work papers did not appropriately reflect the dates on which the audit work was actually completed and reviewed. KPMG India was aware that its audit software allowed its employees to modify or update audit documentation without modifying the sign-off date.
"As a firm we are focused on delivering high quality audits and the conclusion of this matter, along with the enhancements we have made to our quality control systems, enables us to move forward," said a statement from KPMG India. "We remain committed to a culture built on quality and integrity in line with KPMG's values, building public trust and delivering high quality professional services to fulfil our important role in the capital markets."
The sanctions in three countries point to the PCAOB's global enforcement efforts.
"The breadth of the misconduct uncovered in these matters and the aggregate size of the sanctions imposed demonstrate the global reach of the PCAOB's oversight and the board's heightened vigilance in enforcement," said Mark Adler, PCAOB acting director of enforcement and investigations, in a statement.
KPMG is working on improving the firm internationally. "We acknowledge the findings of the PCAOB around our Colombia, India and U.K. firms," said Larry Bradley, global head of audit at KPMG, in a statement. "KPMG remains committed globally to the highest standards of quality and integrity. We are driving a relentless focus on quality and consistency throughout our global organization."
