The Public Company Accounting Oversight Board has released expanded versions of two of its inspections reports of KPMG LLP after the firm failed to address quality control issues to the board’s satisfaction.
The previously nonpublic portions of the 2011 and 2012 inspection reports were released after the firm failed to address some of the PCAOB’s quality control criticisms during the period given to remediate them.
“The quality control remediation process is central to the board’s efforts to cause firms to improve the quality of their audits and thereby better protect investors,” said the report. “The board therefore takes very seriously the importance of firms making sufficient progress on quality control issues identified in an inspection report in the 12 months following the report. Particularly with the largest firms, which are inspected annually, the board devotes considerable time and resources to critically evaluating whether the firm did in fact make sufficient progress in that period. The board makes the relevant criticisms public when a firm has failed to do so to the board's satisfaction.”
Among the quality control issues identified in the reports were a failure to sufficiently evaluate contrary evidence that might not support the client’s conclusions, indicating insufficient professional skepticism. However, the PCAOB acknowledged that KPMG did take steps in recent years to address that problem, including training that it began in 2009 highlighting the inappropriateness of engagement teams truncating their information search as soon as evidence supporting a tentative conclusion is identified, even if there is more information that could support an alternative conclusion. The PCAOB said the training addressed some of its concerns but did not go far enough.
KPMG said it was continuing to make improvements in response to the PCAOB’s recommendations. “Since 2003, the PCAOB’s inspection process has played an important role in assisting us as we identify areas where we can continue to enhance our performance and strengthen our system of audit quality control,” said a statement emailed by KPMG spokesman Robert Wade to Accounting Today on Thursday. “We are always mindful of our responsibility to the capital markets, and we are committed to continually improving our firm and to working constructively with the PCAOB to improve audit quality. We accept the report as constructive in improving audit quality for the companies we audit.”
In a letter included with the reports, KPMG chairman and CEO John Veihmeyer and vice chair of audit James Liddy wrote, “KPMG LLP has established a culture that is built on an absolute commitment to performing consistently high-quality audits and meeting our responsibilities to investors and other participants in the capital markets system. We share the PCAOB’s objectives of continually improving audit quality and building confidence in the auditing profession. The PCAOB’s inspection process serves to assist us in identifying areas where we can continue to improve our performance and strengthen our system of audit quality control. We remain committed to full cooperation with the PCAOB, appreciate the professionalism and commitment of the PCAOB staff and value the important role the PCAOB plays in improving audit quality.”
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