The Public Company Accounting Oversight Board (PCAOB) fined KPMG South Africa and two of its partners a total of $275,000 for supervisory failures and violation of accounting rules related to the use of an unregistered accounting firm.
From 2015-17, KPMG South Africa used an unregistered accounting firm, KPMG Chartered Accountant Zimbabwe, in conducting three audits of an unidentified public company, the PCAOB said Monday in a press release.
KPMG Zimbabwe was not registered with the PCAOB, as required. KPMG South Africa and its partner Cornelis Van Niekerk failed to reasonably supervise KPMG Zimbabwe so its participation in the audits complied with PCAOB requirements, the organization said.
The PCAOB fined KPMG South Africa $200,000, Van Niekerk $50,000, and partner Coenraad Basson $25,000. Van Niekerk agreed to a two-year bar from working as an associate of a registered accounting firm, after which he must petition for reinstatement. Basson agreed to a one-year suspension from working as an associate of a registered accounting firm.
KPMG entered settlement without admitting or denying the board’s findings.
The PCAOB noted these were repeat offenses for KPMG South Africa, as the firm was fined $100,000 in 2018 by the Securities and Exchange Commission for using KPMG Zimbabwe in the 2013-14 audits of the same company. KMPG Zimbabwe agreed to pay $141,000 as part of the enforcement action.
KPMG’s South African operation was also caught up in a corruption scandal when it was accused of facilitating tax evasion and corruption by the Gupta family during the 15 years the firm audited the books of several Gupta businesses. KPMG cut ties with the Gupta family in 2016.
The details: Beyond the continued use of an unregistered firm, KPMG South Africa, Van Niekerk, and Basson attempted to minimize KMPG Zimbabwe’s involvement in the 2017 audits, using “unreasonable adjustments” in an attempt to circumvent the PCAOB’s substantial role registration threshold, the organization said. The firms inaccurately reported to the PCAOB on Form AP that KPMG Zimbabwe had recorded only 17 percent of total audit hours, which the PCAOB said represented a 77 percent reduction of the actual audit hours KPMG Zimbabwe should have recorded.
“Given the global nature of many companies’ operations, multiple accounting firms are often involved in the audits of public companies,” said PCAOB Chair Erica Williams in the press release. “To protect investors, we will hold accountable firms or individuals who fail to appropriately supervise and disclose the participation of other accounting firms in their audits.”
Compliance considerations: As part of the order, KPMG South Africa must review and evaluate its quality control and other policies and procedures to ensure it complies with all regulatory requirements, including audit work performed or supervised by other accounting firms.
KPMG must submit a written report to the PCAOB’s enforcement and investigations director within six months of the order, summarizing the policies and procedures adopted to spur compliance with the organization’s rules and regulations. The firm must officially certify to the PCAOB the new policies and procedures have adequately addressed the issues.
KPMG response: A spokesperson for KPMG said in an emailed statement the settlement with the PCAOB “will enable all those involved to move forward.”
“For KPMG South Africa, this means focusing on our continued commitment to deliver high-quality professional services to our clients, further building public trust,” the statement said.