The Public Company Accounting Oversight Board sanctioned KPMG's member firm in South Korea, KPMG Samjong Accounting Corp., and two of its former auditors for failing to establish and implement appropriate quality control policies and procedures to protect against improper alterations of work papers.
The PCAOB levied a fine of $350,000 against KPMG Korea and fines of $50,000 and $40,000 against a former audit partner and director. The board said 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.
In 2018, while preparing for a PCAOB inspection, KPMG Korea found out that an engagement team for the audit of the Korean component of a U.S. public company had used the previous year's accounts receivable work papers to support its audit conclusions. However, the firm failed to take the steps required by PCAOB auditing standards in time, including seeing whether the engagement team had performed adequate audit procedures, obtained sufficient evidence, and reached the appropriate conclusions.
The PCAOB also found that, upon discovery of the use of the prior year's work papers and other issues, the two former auditors improperly created additional work papers in an effort to mislead the board's inspections staff about the work done at the time of the audit. KPMG Korea's system of quality control failed to prevent or detect their misconduct.
In ordering the sanctions against KPMG Korea, the PCAOB said it took into account the firm's extraordinary cooperation, specifically the substantial assistance it provided to the investigation and the disciplinary action it took against the two auditors. Both of them have been barred from associating with a board-registered accounting firm, with the right to petition to lift the prohibitions 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 Williams in a statement Tuesday. "Firms must take seriously their obligations to prevent and detect such conduct through a robust system of quality control."
KPMG Korea acknowledged the problems, but pointed out that it had brought the matter to the PCAOB's attention.
"The acts of the individuals concerned are contrary to our values," said partner Kyong-Choul Shin in an email. "When the firm discovered the individuals' acts, we reported the matter to the PCAOB and fully cooperated with them. The relevant individuals have been separated from the firm. The firm's systems of quality control have also been enhanced to prevent any future recurrence. We remain committed to a culture built on quality and integrity in fulfilling our important role in the capital markets."
The board acknowledged the assistance it had received from the firm. "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 Division of Enforcement and Investigations, in a statement. "The firm's final sanctions reflect credit for its assistance in our investigation."
