PCAOB dings KPMG in latest audit inspection report
The Public Company Accounting Oversight Board released its 2017 inspection report of KPMG on Thursday, showing a number of continuing deficiencies with the Big Four firm’s audits.
The PCAOB inspected 52 engagements and found problems with half of the audits. The most frequently identified deficiencies were failure to sufficiently test the design and/or operating effectiveness of controls that included a review element and that KPMG selected for testing (17 audits); failure to identify and test any controls that addressed the risks related to a particular account or assertion (13 audits); failure to perform substantive procedures to obtain sufficient evidence as a result of relying too heavily on controls, due to deficiencies in testing controls (13 audits); and failure to sufficiently test significant assumptions or data that the issuer used in developing an estimate (10 audits). Deficiencies most often occurred in the areas of revenue, including allowances (11 audits); loans, including the allowance for loan losses (six audits); and inventory, including related reserves (five audits).
The PCAOB also released a revised 2016 inspection report on KPMG this month after the some members of the firm's senior leadership got into trouble for improperly obtaining advance knowledge of the engagements to be inspected in 2016 and 2017, in collusion with a PCAOB employee, leading to a shake-up at the firm. For the revised 2016 report, the PCAOB inspected 10 different engagements and found deficiencies in 22 out of 51 engagements.
KPMG has been taking steps to improve the quality of audits at the firm, releasing a report on audit quality last year. The firm has also brought two outside independent directors to its board, including a retired Air Force general and a former managing partner of a law firm.
“Audit quality has been and continues to be a top priority across all levels of KPMG, and we are committed to improving our performance and our system of audit quality control to ensure that we provide consistently high-quality audits,” said a statement forwarded by KPMG spokesman Bob Wade in response to the PCAOB report. “The firm has made – and will continue to make – significant investments in our people, technology and governance, to achieve this goal. We respect and welcome all PCAOB feedback, and share the goal of enhancing audit quality. We understand and appreciate our responsibility to our stakeholders and are committed to working constructively with the PCAOB in the months and years to come.”
The PCAOB has been revamping the format of its inspection reports now that a new set of board members has been in place since last year. The KPMG report included a summary upfront of the most frequently identified audit deficiencies and areas in which audit deficiencies were most frequently identified, followed by details of the particular ways in which the firm failed to obtain sufficient audit evidence or perform sufficient audit procedures in accordance with PCAOB standards.