Big fine for KPMG Firm hit

KPMG fined $7.7 million

The US regulator is not happy with KPMG, and recently fined it millions of dollars over its UK exam cheating – and lots of other stuff…

The US’s accounting watchdog has imposed $7.7million in fines, sanctioned three firms and four auditors from KPMG over cheating in training exams, signing off on blank work papers, improper use of an unregistered firm and failure to co-operate with a Public Company Accounting Oversight Board (PCAOB) inspection.

The PCAOB issued two disciplinary orders against KPMG UK. In one order, it sanctioned KPMG UK for violating quality control standards relating to integrity and personnel management. Similar to KPMG Colombia, KPMG UK failed to detect or prevent extensive, improper answer sharing on tests for mandatory internal training courses. From 2018 until March 2021, hundreds of individuals from KPMG UK and KPMG Resource Centre Private Limited, an India-based entity that provides support for KPMG UK’s audit work, engaged in improper answer sharing. This occurred in connection with tests for training courses covering topics that included auditing, accounting, and professional independence. All of the professionals implicated in the answer sharing performed work for KPMG UK’s Assurance practice.

Without admitting or denying the findings in the order concerning the improper answer sharing, KPMG UK was censured and agreed to pay a $2 million civil money penalty and to review and improve as necessary its quality control policies and procedures to provide reasonable assurance that its personnel act with integrity in connection with internal training.

The PCAOB also sanctioned KPMG UK for failing to reasonably supervise an unregistered audit firm in four consecutive audits of a public company client. In particular, KPMG UK allowed the unregistered Romanian audit firm KPMG Audit SRL to play a substantial role in four consecutive audits in which KPMG Audit SRL incurred as many as 74% of the total audit hours. Compounding the failure, in three of the four audits, KPMG UK erroneously reported that PCAOB-registered firm KPMG Romania SRL, not KPMG Audit SRL, had participated in the audits.

The PCAOB imposed a $600,000 civil money penalty, censure, and quality control undertakings on the Big 4 firm.

Meanwhile, KPMG Colombia was fined $4 million and KPMG India $1 million for other offences.

“These actions should send the message to KPMG and all other registered firms that the PCAOB is committed to rooting out misconduct wherever it occurs and will employ all sanctions at its disposal to protect investors and improve audit quality,” said PCAOB chair Erica Williams.

The sanctions are just the latest in a series of fines over exam cheating.

In June 2022, the US Securities and Exchanges Commission (SEC) fined Ernst & Young (EY) a record $100m over claims its auditors cheated on their ethics exams.

PwC in February 2022 was also fined a combined sum of £670,000 by US and Canadian regulators over a cheating scandal, after KPMG was fined $50m last year by the SEC for a similar offence. For more see https://tinyurl.com/2u4999wd

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