PCAOB sanctions KPMG network firms in 9 countries

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The Public Company Accounting Oversight Board has censured nine firms in KPMG's global network and imposed a total of $3.375 million in fines on firms in Australia, Brazil, Canada, Israel, Italy, Mexico, South Korea, Switzerland and the United Kingdom, charging them with violations of PCAOB quality control standards and failing to disclose who performed the audits.

The fines and sanctions were levied on KPMG Auditores Independentes Ltda. in Brazil, KPMG LLP in Canada, KPMG S.p.A. in Italy, Somekh Chaikin in Israel, KPMG LLP in the U.K., KPMG Cárdenas Dosal, S.C.  in Mexico, KPMG Samjong Accounting Corp. in South Korea, KPMG AG in Switzerland, and KPMG in Australia.

"It is essential that investors and audit committees know where issuers' audits are being conducted and by whom so that they can make informed selection and ratification decisions. These violations prevent investors and audit committees from obtaining important information," said PCAOB chair Erica Williams in a statement Tuesday. "Firms must take these obligations seriously and ensure their required communications and reporting are complete and accurate."

The PCAOB found that each firm violated quality control standards related to meeting professional standards, regulatory requirements, as well as each firm's own standards of quality; and monitoring procedures.

Each of the nine firms were also found to have violated PCAOB Rule 3211, Auditor Reporting of Certain Audit Participants, by failing to accurately disclose on PCAOB Form AP the participation in firm audits of other accounting firms, such as component auditors, shared service centers and critical audit matter hubs. The PCAOB noted that such disclosures are particularly significant in multi-country audits, where it's even more likely that multiple parties worked on an audit. 

Four of the firms — KPMG Australia, KPMG Brazil, KPMG Canada and KPMG UK — also failed to communicate to audit committees the name, location and planned responsibilities of one or more other accounting firms, as required by AS 1301, Communications with Audit Committees, potentially hindering the audit committees' ability to supervise their auditors.

KPMG Brazil also violated PCAOB Rule 2200, Annual Report, by failing to report on Form 2 certain audit reports or consents issued by the firm.

KPMG acknowledged the penalties and said it had corrected the errors on the forms.

"Several KPMG member firms have received financial penalties from the PCAOB in regard to errors made on PCAOB Forms," said a KPMG spokesperson. "These have now been corrected and the firms accept the issued penalties. The form errors had no impact on any financial statements of entities audited or the audit opinions issued on those statements." 

KPMG is reportedly mulling a reorganization of its global structure in which it will merge several of the member firms in different countries, according to the Financial Times and The Wall Street Journal, reducing the number of units from over 120 to 30 or 40 by the end of 2026.

PCAOB board member Christina Ho criticized the sanctions in a LinkedIn post.

"Today, the PCAOB's hostility toward the public auditing profession has reached new heights," she wrote, adding a disclaimer that these only represent her views and not the rest of the board. "The chest-thumping news release below stated that PCAOB sanctions 9 foreign affiliates of a Global Network Firm for violations of PCAOB Rules and Standards, including Quality Control. Based on the headline, you would think that these firms committed egregious audit quality violations. NOT SO. These violations were mostly for filing inaccurate form APs, and in many cases, the foreign affiliates filed amended form APs after identifying the inaccuracies themselves. In my view, these violations are akin to parking ticket violations, and the sanctions are punitive and excessive. I also wonder what the opportunity costs are when we spend our resources on this type of violation. Furthermore, it appears that PCAOB is determined to spread an exaggerated narrative suggesting that public company audits and the auditing profession cannot be trusted. This binary, chest-thumping approach of bashing the profession in the name of investor protection will only lead to more polarization and distrust."

Without admitting or denying the findings, each of the firms agreed to a PCAOB order censuring the firm and imposing penalties totaling $3.375 million.

Each firm also agreed to undertake remedial actions to improve their quality control policies and procedures in the areas where the failures occurred.

"These enforcement actions demonstrate that we will hold firms accountable for violating PCAOB rules and standards regarding communications and reporting," said Robert Rice, director of the PCAOB's Division of Enforcement and Investigations, in a statement.

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