PCAOB Sanctions KPMG AZSA LLC for Quality Control Violations
The PCAOB imposes a $500,000 fine on Japanese affiliate of KPMG International network and requires the firm to review and certify quality control policies and procedures concerning journal entry testing
The Public Company Accounting Oversight Board (PCAOB) today announced a settled disciplinary order sanctioning KPMG AZSA LLC (“KPMG Japan” or the “Firm”) for violating PCAOB quality control standards.
Specifically, the PCAOB found that, from 2019 through 2021, KPMG Japan’s policies and procedures were insufficient to provide it with reasonable assurance that Firm personnel performing audits pursuant to PCAOB standards would conduct sufficient testing of journal entries to comply with applicable auditing standards.
Moreover, the PCAOB found that KPMG Japan failed to adequately monitor its system of quality control, as evidenced by the fact that the Firm’s internal review program evaluated an audit with deficient journal entry testing but did not adequately escalate or otherwise address that issue, which contributed to similarly deficient journal entry testing continuing in the subsequent year.
“Effective quality control systems protect investors, while ineffective systems put investors at risk,” said PCAOB Chair Erica Y. Williams. “That's why quality control has been and will remain a PCAOB priority across our standard-setting, inspection, and enforcement efforts.”
“Firms’ systems of quality control are critical to ensuring that their personnel comply with PCAOB auditing standards,” said Robert E. Rice, Director of the PCAOB’s Division of Enforcement and Investigations (DEI). “When those systems are inadequate, audit quality suffers, and firms can expect to be subject to disciplinary action.”
Without admitting or denying the findings, KPMG Japan consented to the PCAOB’s order, which censures the Firm and imposes a $500,000 civil money penalty. In addition, KPMG Japan must review and evaluate its policies and procedures concerning journal entry testing, submit a report to the DEI Director summarizing that review, and implement any changes identified as warranted because of the review.
PCAOB enforcement staff members Brett Collings, Jerry Folk, Johnathon Dobbs, and Tiffany Johnson conducted the investigation. C. Ian Anderson and John Abell supervised this matter.
The PCAOB oversees auditors’ compliance with the Sarbanes-Oxley Act, provisions of the securities laws relating to auditing, professional standards, and PCAOB and SEC rules.
Further information about the PCAOB Division of Enforcement and Investigations is available on the PCAOB website. Firms or individuals wishing to report suspected misconduct by auditors, or to self-report possible misconduct, may visit the PCAOB Tips and Referrals page.
About the PCAOB
The PCAOB is a nonprofit corporation established by Congress to oversee the audits of public companies in order to protect investors and further the public interest in the preparation of informative, accurate, and independent audit reports. The PCAOB also oversees the audits of brokers and dealers registered with the Securities and Exchange Commission, including compliance reports filed pursuant to federal securities laws.
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