Another 50 Million Reasons Not To Trust The Auditors

KPMG audit partners settle test cheating allegations

By Aaron NicodemusTue, May 19, 2020 1:05 PM

The KPMG cheating scandal expanded this week as three former partners at the firm settled charges with the SEC regarding the improper sharing of answers for internal training exams. According to the SEC’s orders, former KPMG audit partners Timothy Daly, Michael Bellach, and John Donovan each engaged in misconduct in connection with exams KPMG administered to test whether its audit professionals understood certain accounting and auditing principles. The orders against Daly and Bellach find that in October 2018, at Daly’s request, Bellach texted Daly images of the questions and answers to a required training examination. After KPMG began investigating possible cheating by its professionals and required strict compliance with a document preservation notice sent to all KPMG personnel, Daly deleted the text messages from Bellach and falsely told KPMG investigators he had not received any answers to KPMG training exams. The orders further find that Daly encouraged Bellach to delete the text messages as well, which Bellach did after receiving KPMG’s document preservation notice.

KPMG agreed to settle the charges by paying a $50 million penalty and complying with a detailed set of undertakings, including retaining an independent consultant to review and assess the firm’s ethics and integrity controls and its compliance with various undertakings.

By Max de Haldevang, September 10, 2019

Geopolitics reporter

The Big Four accounting firms bungled 31% of the most recent US audits analyzed by their quasi-governmental watchdog, the Public Company Accounting Oversight Board (PCAOB). Yet despite the abysmal findings, the oversight board—which the US government empowers to police the audit firms—has rarely taken action against them.

In its 16-year history, the PCAOB has made only 18 enforcement cases against the foursome—KPMG, Deloitte, EY, and PriceWaterhouseCoopers—according to an investigation published recently by the Project on Government Oversight (POGO).

While the Big Four failed to properly audit their clients in 31.1% of cases examined by the PCAOB since 2009, the PCAOB has only disciplined them in 6.6% of those cases, including in actions also taken by the Securities and Exchange Commission (SEC), according to POGO data. (The SEC oversees the PCAOB and sometimes takes on high-profile cases involving auditors.)

KPMG hasn’t been fined a single time, POGO reports—despite it boasting the worst failure rate at 36.6%. In 2017 alone, it failed to accurately audit its clients half the time. The audits examined by the PCAOB are not a representative sample—it decides which ones to analyze based on “perceived risk.”

The plethora of allegedly poor audits is not just a US issue. On Sept. 9, Britain’s own accounting watchdog, the Financial Reporting Council (FRC), lamented “undesirable inconsistency across the market.” A quarter of large company audits required significant improvements, it said. The FRC has amped up its enforcement efforts, fining auditors £32 million ($39.5 million) during the year ending March 31.

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