KPMG makes elementary errors
October 6, 2005
The US version of AccountingWEB details the PCAOBs finding on KPMGs performance. The detail revealed should give heart to any audit partner losing sleep over audit standards:
"In their exhaustive examination of 76 audits, the PCAOB found many significant errors in 19 audits, one error leading an unnamed client’s board to restate their initially reported earnings according to the report. The report also stated that KPMG auditors set their threshold for corporate accounting mistakes too high on at least two audits. The number of mistakes should have initiated a more detailed examination but did not.
Deficiencies included failure to address companies’ sometimes significant departures from GAAP compliance and perform certain audit procedures properly according to the report. A major criticism in the PCAOB report was KPMG’s failure to obtain and preserve documentation to support the conclusions of the audit.
In some cases, KPMG did respond after being informed of these deficiencies. There were additional efforts by KPMG and their clients that “led to a change in the issuer’s accounting or disclosure practices or led to representations related to the prospective changes,” the PCAOB report said.
KPMG Chairman Timothy Flynn responded in his prepared statement, “KPMG has reviewed the finding identified during the inspection … and has concluded that, with one exception, no new facts came to our attention that caused us to believe that our clients’ previously issued financial statements should be restated or our auditors’ reports withdrawn.”
I don’t know about you but this is a savage indictment of a global firm. What’s worse, KPMG brushes aside its culpability. I wonder what would have happened if such a scandal had emerged in the UK. How many partners would have been hauled up before the headmaster and given a good spanking?
Given there is an atmosphere of distrust at this time, it is crucial you distance your firm from this kind of thing. That means ensuring internal communications are sufficiently friction free so where weaknesses are spotted, everyone gets to know - toutes suite. This technology can facilitate that.
In the meantime, let’s hope audit partners at KPMG are losing sleep - just for a change.
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