The Public Company Accounting Oversight Board has issued its latest inspection report on KPMG, listing deficiencies in several sample audits conducted by the firm.
In the case of one client, PCAOB inspectors noted that the firm failed to test the accuracy of loan delinquency data and borrower credit score ranges that the client had used to estimate its allowance for loan losses. KPMG auditors also failed to consider the credit risk associated with the nature of the client's loans and underwriting policies and to evaluate the reasonableness of the unallocated portion of the allowance, which had not changed in five years. The inspectors also found that the firm failed to perform sufficient procedures to test the interest expense related to deposits.
With another client, the PCAOB inspectors said that KPMG auditors failed to sufficiently test the valuation of securities that it considered "hard-to-price." The inspectors also said the firm failed to appropriately test the same client's estimate for two insurance-related reserves.
In response to the PCAOB report, KPMG said it has addressed the findings. "We conducted a thorough review of the matters identified in the draft report and addressed the engagement-specific findings in a manner consistent with PCAOB auditing standards and KPMG policies and procedures," said a letter from the firm. "Based on this review, in some cases, we performed additional audit procedures and/or supplemented our audit documentation; in other cases, we determined that no remediation of any type was necessary. None of the matters identified by the PCAOB required the reissuance of any of our previously issued reports."
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