The Korean affiliate of Big Four audit firm KPMG was fined $350,000 by the Public Company Accounting Oversight Board (PCAOB) for failures in its quality control policies and procedures to protect against improper alterations of work papers carried out by two former employees during an audit.
KPMG Samjong Accounting Corp. (KPMG Korea) was censured and must improve its quality control systems as part of its settlement with the PCAOB announced Tuesday. Jin Tae Kim, a former KPMG Korea partner, and Se Woon Jung, a former KPMG Korea director, were fined $50,000 and $40,000, respectively, and barred from associating with a PCAOB-registered accounting firm for at least three years as part of separate disciplinary orders regarding their alleged actions.
Neither the firm nor Kim or Jung admitted or denied the PCAOB’s findings.
KPMG Korea was lauded by the PCAOB for its “extraordinary cooperation” in the case, including assistance it provided to the organization’s investigators and its parting with Kim and Jung in March 2019.
The details: During a fiscal year 2017 audit of an unidentified issuer, KPMG US tasked its Korean affiliate with auditing the financial information of five Korean components of the issuer. The U.S. firm notified the Korean affiliate the work must meet PCAOB standards and the Korean components were financially significant, with revenue flagged as an area of focus, according to the PCAOB’s order. KPMG Korea would certify its work was conducted in line with PCAOB standards and risks around revenue were addressed by performing accounts receivable confirmation procedures.
In September 2018, in preparation for a PCAOB inspection, KPMG Korea’s Department of Professional Practice (DPP) “learned that audit procedures may not have been performed, evidence may not have been obtained, or appropriate conclusions may not have been reached in connection with the component audit,” the PCAOB stated. Accounts receivable documentation consisted primarily of prior year work papers for three of the five components, according to the order; despite this finding, the DPP “relied on the component audit engagement team to evaluate the sufficiency of the procedures and evidence and did not adequately follow up with the engagement team.”
Kim, the lead partner on the component audits, and Jung, the engagement manager, had not identified the issues regarding the prior year work papers as part of their engagement, the PCAOB alleged. Notified of the problem, the two improperly added documents to the archived audit documentation and created an independence confirmation that appeared as if it had been completed during their initial work, the regulator continued. The added documents “did not indicate the date the information was added, the name of the person who prepared the additional documentation, or the reason for adding it,” in violation of PCAOB standards.
Despite these warning signs, KPMG Korea’s quality control system “failed to provide reasonable assurance that the work performed by engagement personnel met applicable professional standards, regulatory requirements, and the firm’s standards of quality,” the PCAOB determined.
Kim and Jung were also faulted for misleading PCAOB inspectors regarding the documents.
A global spokesman for KPMG did not return a request for comment.