The other day the PCAOB proudly announced that it was punishing several members of KPMG’s global network, those being: KPMG Brazil, KPMG Canada, KPMG Italy, KPMG Israel, KPMG UK, KPMG Mexico, KPMG Samjong, KPMG Switzerland, KPMG, KPMG Australia. All they had to do was nab KPMG Kenya and it would be a true world tour of audit naughtiness. Oh sorry, that’s ignorant of us just assuming there’s a KPMG Kenya. It’s actually KPMG East Africa and covers Kenya, Rwanda, Tanzania and Uganda. Uganda, you say?
Anyway, they didn’t get in trouble. All nine of those listed KPMGs did though. Each of them 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, including, among others, component auditors, shared service centers, and critical audit matter hub.” Along with filing a Form AP with the PCAOB for each audit on which another firm performs a share of the work, PCAOB standards specify the auditor, as part of communicating the overall audit strategy, should communicate with the audit committee the names, locations, and planned responsibilities of other independent public accounting firms or other persons, who were not employed by the auditor, that performed audit procedures in the current period audit.
Said the PCAOB in their press release about this 9-way KPMG smackdown:
These disclosures are particularly significant in multi-country audits, where it is even more likely that multiple parties worked on an audit. The violations mean that investors and audit committees did not have a complete and accurate picture of who was completing the issuers’ audits and how much of the audit work was completed by the signing firm versus other accounting firms.
As an example, KPMG Brazil filed two incorrect Form APs that neglected to mention:
KPMG Brazil’s Form AP for the 2019 CPFL Audit, filed on May 29, 2020, listed no participating other accounting firms in Part IV. However, KPMG Brazil had utilized KPMG Assurance to perform approximately 2,000 hours of work in connection with the 2019 CPFL Audit, accounting for over 5% of the total audit hours. As such, KPMG Brazil should have reported KPMG Assurance in its Form AP as a participating other accounting firm.
And KPMG Australia got in trouble for this, among other things:
In connection with the Rio Tinto Audits, KPMG Australia directly engaged another KPMG International member firm in India to perform audit procedures to support a component auditor.
Following the Rio Tinto Audits, KPMG Australia filed Form APs. In its Form AP filings, despite knowing of the other accounting firm’s work on the Rio Tinto Audits, KPMG Australia failed to report the other KPMG International member firm as a participant in the audits.
Accordingly, KPMG Australia violated PCAOB Rule 3211(a) in connection with the Form APs for the Rio Tinto Audits.
On November 23, 2023, KPMG Australia filed amended Form APs for each of the Rio Tinto Audits to report the participation the KPMG International member firm as an other accounting firm representing less than 5% of total audit hours.
And KPMG UK really stepped in it [PDF of the PCAOB order]:
For 13 audits across seven different issuers with fiscal years ending in 2019 through 2022, KPMG UK filed Form APs that failed to accurately report information concerning other accounting firm participants. In particular, the Firm failed to file accurate Form APs in connection with the following:
- the Firm’s use and reporting of component auditors or firms used by the component auditors;
- the Firm’s use of other non-accounting firms, including a “shared service center,” or non-accounting firms’ use of other accounting firms; and
- the Firm’s use of personnel borrowed from other accounting firms.
Total fines for all nine firms comes to $3.375 million. All the extra paperwork and quality control training they’ll all have to do is the real punishment of course.
One day before the PCAOB announced it managed to bowl a 9-pin knockdown against several KPMGs, Financial Times reported that KPMG is considering merging together several of its international entities down from 100 to 32. Their motivation is partially to “prevent audit scandals,” according to FT’s sources. That made much more sense after we had the context of the PCAOB sanctions.
On March 13 the PCAOB put out an unusually passive aggressive news release that suggests KPMG isn’t the only firm struggling to get this Form AP thing in line with the PCAOB’s expectations.
“PCAOB staff continues to identify a large number of deficiencies related to auditors’ Form AP filings,” said the release. “The deficiencies include, among others, inaccurately reporting whether another accounting firm contributed 5% or more of total audit hours, omitting or incorrectly reporting the percentage of total audit hours contributed by a firm, or providing the incorrect date of the audit report.”
Why do we get the feeling Form AP is going to be the new answer-sharing?
Earlier:
Any problems with the work itself? A restatement? Nope never a restatement for all the supposed errors that that PCAOB finds – so nothing ever rises to the level of being material – and the PCAOB is needed for what reason other than to be sure that no person is cheating on CPE tests?
Big deal. My poem, with apologies to Johnnie Cochran (JC), of OJ fame,
If Form APs didn’t exist,
Would investors be at increased risk?
JC’s version:
If the glove doesn’t fit,
You must acquit.
Did the various KPMG firms knowingly prepared deficient APs to give the PCAOB some enforcement actions to crow about? In return, the PCAOB will ignore any serious audit deficiencies it might find in each of these firms’ work for say, the next two years.
Between these enforcement actions and “sweeps”. the PCAOB is an excellent candidate to be DOGEd.
No restatements. No true issue misleading the public of client management. I doubt if any stakeholder cares. True pettiness by the PCAOB.