SEC charges KPMG, Deloitte and BDO’s foreign affiliates over improper audits

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Foreign affiliates of KPMG, Deloitte & Touche and BDO have agreed to settle charges with the Securities and Exchange Commission for getting involved in audit work that circumvented the Public Company Accounting Oversight Board’s full oversight.

The firms agreed to settle the charges by paying penalties or disgorging their profits from the audits, the SEC said Tuesday.

The improper work involved the Zimbabwe affiliates of Deloitte & Touche and KPMG, which audited the majority of the assets and revenues of an unidentified publicly traded company without first registering with the PCAOB. The two main auditors for the client—KPMG's affiliate in South Africa and BDO's Canadian affiliate—were actually registered with the PCAOB, but they relied upon the work of the two unregistered foreign component auditors to finish their audits of the company. That violated PCAOB standards requiring sufficient analysis and inquiry when using the work of another auditor.

“KPMG South Africa reached a settlement with the SEC on a matter dating from 2013 and 2014, when KPMG South Africa relied on audit work performed by KPMG Zimbabwe which was not registered with the PCAOB," said a statement forwarded by KPMG International spokesman Brian Bannister. "Following identification of the matter by KPMG quality controls, KPMG South Africa reported the matter timely to the SEC in May 2016.”

“We are pleased to have resolved this matter,” said Deloitte Africa reputation & risk leader Murray Dicks in a statement. “We are committed to operating in accordance with the highest professional standards and in full compliance with regulatory requirements.”

BDO USA had no comment.

The PCAOB has been focusing more on violations by firms that rely on the work of outside auditors and specialists, as is common at many large audit firms. Large accounting firm networks sometimes use auditors from affiliated firms in other countries, particularly in emerging markets.

The SEC found that Deloitte & Touche Chartered Accountants in Zimbabwe and KPMG in Zimbabwe violated the Sarbanes-Oxley Act, and BDO Canada LLP and KPMG in South Africa engaged in improper professional conduct, violated Regulation S-X, and caused their auditing client to violate its reporting obligations.

Without admitting or denying the findings, BDO Canada agreed to pay a $50,000 penalty, while KPMG in South Africa agreed to a $100,000 penalty, and Deloitte in Zimbabwe agreed to pay disgorgement and interest totaling $99,057. For its part, KPMG in Zimbabwe agreed to pay disgorgement and interest amounting to $141,305.

“It’s in the best interest of Main Street investors that all firms substantially involved in the audit of a public company are properly registered with the PCAOB so they are subject to the oversight necessary to ensure accuracy and prevent fraud,”' said Scott W. Friestad, associate director of the SEC’s Division of Enforcement in a statement. “These unregistered foreign component auditors performed significant audit work outside the PCAOB's regulatory purview, and the principal auditors failed to consider the registration status of these firms as they used their work.”

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Audits International accounting Audit standards Accounting firm networks KPMG Deloitte BDO SEC