The Public Company Accounting Oversight Board says KPMG failed in 46 percent of its inspected audits in 2013 to arrive at an adequately supported audit opinion, and failed to adequately address quality control issues raised in earlier inspections.
The PCAOB published the results of its 2013 inspection of KPMG and flagged 23 of the 50 audits that inspectors examined as having problems. At the same time, the PCAOB republished the firm’s 2011 and 2010 inspection reports indicating KPMG did not correct quality control problems, prompting the board to expose concerns that previously had been kept private.
In the 2013 report, the PCAOB tallied 20 instances out of the 23 deficient audits where auditors failed to comply with Auditing Standard No. 5, which governs the internal control audit. Inspectors also noted 13 instances where auditors failed to adhere to standards around auditing accounting estimates, and eight audits where there were problems with the auditor’s response to the risks of material misstatements. The firm did not immediately comment on any of the reports beyond those contained within the reports.
In a letter attached to the inspection report, KPMG leadership raises no objection to the PCAOB’s findings. “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,” wrote John Veihmeyer, chairman and CEO, and James Liddy, vice chair of audit for KPMG LLP. The letter says the firm conducted its own evaluation of the inspection findings and took action to address engagement-specific findings consistent with auditing standards and the firm’s own policies and procedures.
Among the Big 4, KPMG’s 46-percent audit deficiency rate follows only EY, which drew criticism on 49 percent of its inspected audits in its 2013 inspection. The PCAOB flagged 32 percent of the audits it examined in 2013 at PwC, and 28 percent at Deloitte. For KPMG, the failure rate is a new high, following rates of 34 percent in 2012 and 23 percent in 2011.
PCAOB inspections are meant to ferret out the most difficult, problematic areas of the highest-risk audits, and the PCAOB cautions against extrapolating inspection results or applying them broadly to the firm’s overall level of audit quality.
Separately, the PCAOB also republished KPMG’s 2011 and 2010 inspection reports with new information on the quality controls concerns inspectors witnessed during those inspection cycles. In both reports, inspectors said KPMG auditors were too quick to dismiss contrary evidence, or evidence that would contradict a favorable audit opinion. Inspectors noted that while the firm introduced training to address the matter, they believed the firm should evaluate the root causes of auditors’ failure to consider contradictory evidence.
“We accept the board’s determination and take seriously our responsibility to address these matters,” wrote Veihmeyer and Liddy in their response to the PCAOB action. “We have taken remedial actions with respect to our professionals’ evaluation of contrary evidence. We will take the further actions necessary to address this quality control criticism and will continue to enhance our system of audit quality control.”