We’ve finally reached the end of the six-pack of 2018 inspection reports released by the PCAOB on June 1. And we saved our favorite four-letter Big 4 firm for last.
Among the Big 4, KPMG’s inspection reports have been the most abysmal. Since 2010, Deloitte, PwC, and EY have not had an audit deficiency rate at 50% or higher. But KPMG has. Twice. In 2014 and 2017. It’s that horrible 2014 inspection report that supposedly kickstarted the plan by a handful of KPMG brainiacs to cheat the regulatory inspection process. And we all know how well that turned out.
Anyhoo, when the PCAOB released KPMG’s 2017 inspection report last year, we learned that the firm flunked half of the audits reviewed by inspectors, leading Adrienne to proclaim that the PCAOB should just put KPMG out of its misery. While the thought of that happening is kinda funny, the PCAOB let KPMG live and gave the firm’s auditors another chance to get their shit together.
So, how did KPMG do in its 2018 inspection report?
At least KPMG had more audits without deficiencies than with deficiencies. Progress! And its 37% deficiency rate in 2018 is actually KPMG’s lowest since 2012. Great job, Klynveldians! And while KPMG had the most audits among the Big 4 that went haywire, its error rate wasn’t the highest—that honor went to BDO USA, bless their hearts.
Here’s a historical look at KPMG audit deficiencies, courtesy of a March 2019 report by Compliance Week with updates by us:
- 2010: 22%
- 2011: 23%
- 2012: 34%
- 2013: 46%
- 2014: 54%
- 2015: 38%
- 2016: 43%
- 2017: 50%
- 2018: 37%
You can read all about the problems KPMG had with its audits below, but we’ll give you the quick and dirty.
KPMG auditors had the most trouble with testing controls over the accuracy and completeness of data or reports (11 audits), testing the design or operating effectiveness of controls selected for testing (nine audits), identifying controls related to a significant account or relevant assertion (seven audits), and the overreliance on controls when performing substantive testing due to certain of these deficiencies (eight audits).
Plus, check out all the PCAOB rules and standards, including those pertaining to PCAOB’s precious Form AP, that KPMG decided not to follow:
The deficiencies below are presented in numerical order based on the PCAOB standard or rule with which the firm did not comply. We identified the following deficiencies:
- In four of 52 audits reviewed, the firm did not assemble a complete and final set of audit documentation for retention within 45 days of the report release date. In these instances, the firm was non-compliant with AS 1215, Audit Documentation.
- In one of 10 audits reviewed, the firm did not make a required communication to the issuer’s audit committee related to the current year’s uncorrected misstatements. In this instance, the firm was non-compliant with AS 1301, Communications with Audit Committees.
- In six of 26 audits reviewed, the firm did not make certain required communications to the issuer’s audit committee related to the names, locations, and planned responsibilities of other independent public accounting firms that performed audit procedures in the current period audit. In these instances, the firm was non-compliant with AS 1301, Communications with Audit Committees.
- In five of 52 audits reviewed, the firm did not make certain inquiries of the issuer’s audit committee related to fraud. In these instances, the firm was non-compliant with AS 1301, Communications with Audit Committees, and AS 2110, Identifying and Assessing Risks of Material Misstatement.
- In two of 26 audits reviewed where one or more other accounting firms participated in the firm’s audit, the firm’s report on Form AP contained inaccurate information and/or omitted information that was required to be reported. In these instances, the firm was non-compliant with PCAOB Rule 3211, Auditor Reporting of Certain Audit Participants.
- In one of 10 audits reviewed, the firm did not document the substance of its discussions with the audit committee about the potential effects of permissible tax services on the independence of the firm. In this instance, the firm was non-compliant with PCAOB Rule 3524, Audit Committee Pre-approval of Certain Tax Services.
Here’s the final tally of 2018 inspection report failure rates:
- Deloitte: 12%
- Grant Thornton: 25%
- PwC: 25.4%
- EY: 26%
- KPMG: 37%
- BDO USA: 48%