PCAOB Sanctions Nine KPMG Global Network Firms for Violations of PCAOB Rules and Standards, Including Quality Control

The Public Company Accounting Oversight Board (PCAOB) today announced nine settled disciplinary orders sanctioning certain firms from KPMG’s global network for violations of PCAOB rules and standards, including quality control standards.

The firms are KPMG Auditores Independentes Ltda. (“KPMG Brazil”), KPMG LLP (“KPMG Canada”), KPMG S.p.A. (“KPMG Italy”), Somekh Chaikin (“KPMG Israel”), KPMG LLP (“KPMG UK”), KPMG Cárdenas Dosal, S.C. (“KPMG Mexico”), KPMG Samjong Accounting Corp. (“KPMG Samjong”), KPMG AG (“KPMG Switzerland”), and KPMG (“KPMG 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 Y. Williams. “Firms must take these obligations seriously and ensure their required communications and reporting are complete and accurate.”

The PCAOB found the following:

• Each firm violated quality control standards related to (1) meeting professional standards, regulatory requirements, and each respective firm’s standards of quality; and (2) monitoring procedures.
• Each of the nine firms 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 hubs. 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.
• Four 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.

Without admitting or denying the findings, each firm consented to a PCAOB order that censures the firm and imposes civil money penalties totaling $3.375 million.

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

“These enforcement actions demonstrate that we will hold firms accountable for violating PCAOB rules and standards regarding communications and reporting,” said Robert E. Rice, Director of the PCAOB’s Division of Enforcement and Investigations.

PCAOB enforcement staff members Noah Berlin, Noelle Henry, Rebecca Mealey, Judy Fish, Nick Gradone, Tima Hawes, and Tamika Battle-Parker conducted the investigations into KPMG Canada, KPMG UK, KPMG Samjong, KPMG Mexico, KPMG Israel, KPMG Australia, KPMG Italy, and KPMG Switzerland. Noah Berlin, Lindsay Kelemen, Noelle Henry, Roosevelt Barros, and Thomas Barry conducted the investigation into KPMG Brazil. William Ryan and John Abell supervised these matters.

The PCAOB oversees auditors’ compliance with the Sarbanes-Oxley Act, provisions of the securities laws relating to auditing and 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.