PCAOB Sanctions KPMG Korea for Violating Quality Control Standards and Sanctions Two Former KPMG Korea Auditors for Noncooperation
KPMG Korea fined $350,000; Two individuals barred from association and fined $50,000 and $40,000, respectively
The Public Company Accounting Oversight Board (PCAOB) today announced that it has sanctioned KPMG Samjong Accounting Corp. (“KPMG Korea”) for failing to establish and implement appropriate quality control policies and procedures to protect against improper alterations of work papers. The Board further found that KPMG Korea failed to take required steps after learning that certain audit procedures may not have been performed in connection with an audit of a public company.
The PCAOB also sanctioned a former KPMG Korea partner and a former KPMG Korea director for improperly altering work papers and violating auditing standards in connection with the same audit.
The Board imposed a censure and a civil money penalty of $350,000 on KPMG Korea and required the firm to undertake and certify improvements to its system of quality control. The Board also imposed a separate $50,000 civil money penalty on a former KPMG Korea partner, Jin Tae Kim, and a $40,000 penalty on a former KPMG Korea director, Se Woon Jung. Kim and Jung have been barred from associating with a PCAOB-registered accounting firm, with the right to petition the Board to lift the bars after three years.
“Auditors’ improper alteration of audit documentation undermines the integrity of the Board’s inspection processes and impedes the Board’s mission to improve audit quality and protect investors,” said PCAOB Chair Erica Y. Williams. “Firms must take seriously their obligations to prevent and detect such conduct through a robust system of quality control.”
In 2018, while preparing for a PCAOB inspection, KPMG Korea learned that an engagement team for the audit of the Korean component of a U.S. public company had used the prior year’s accounts receivable work papers to support its audit conclusions. However, the firm failed to timely take the steps required by PCAOB auditing standards, including determining if the engagement team had performed sufficient audit procedures, had obtained sufficient evidence, and had reached appropriate conclusions.
The Board also found that, upon discovery of the use of the prior year’s work papers and other issues, Kim and Jung improperly created additional work papers in an effort to mislead the Board’s inspections staff about the work performed at the time of the audit. KPMG Korea’s system of quality control failed to prevent or detect Kim’s and Jung’s misconduct.
In ordering the sanctions against KPMG Korea, the Board took into account the firm’s extraordinary cooperation, specifically the substantial assistance it provided to the PCAOB’s investigation and the disciplinary action it took against Kim and Jung.
“The PCAOB’s Policy on Extraordinary Cooperation encourages auditors to go above and beyond what is required by law,” said Patrick Bryan, Director of the PCAOB’s Division of Enforcement and Investigations. “The firm’s final sanctions reflect credit for its assistance in our investigation.”
PCAOB enforcement staff members Michael Rosenberg, R. Davis Taylor, Christina Carroll, and Tima Hawes conducted the investigation, supervised by William Ryan and John Abell.
The PCAOB oversees auditors’ compliance with the Sarbanes-Oxley Act, provisions of the securities laws relating to auditing, professional standards, and PCAOB and Securities and Exchange Commission 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, including compliance reports filed pursuant to federal securities laws.
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