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U.S. Audit Regulator Disciplines KPMG Australia for Cheating by its Auditors on Internal Tests

Soyoung Ho  Senior Editor, Accounting and Compliance Alert

· 5 minute read

Soyoung Ho  Senior Editor, Accounting and Compliance Alert

· 5 minute read

The U.S. audit regulatory board PCAOB said that KPMG Australia was fined for violating the board’s rules and quality control standards regarding the firm’s training program in light of revelations that its auditors cheated on internal tests.

The PCAOB supervises accounting firms that audit public companies listed on U.S. stock exchanges. Foreign companies trade on American exchanges.

The board censured, fined $450,000, and required KPMG Australia to fix the problems, according to the PCAOB’s order in Release No. 105-2021-008, issued on September 13, 2021.

This is another black eye for KPMG as the Big Four firm in the U.S. was involved in an elaborate scheme to pass the PCAOB’s annual audit inspection a few years back.

KPMG Australia, headquartered in Sydney, is a member firm of the KPMG International Limited Global network.

The PCAOB said that the firm’s violations occurred from at least 2016 until early 2020 by failing to set appropriate policies and procedures for administering and monitoring training tests. These include tests intended to help its auditors satisfy the requirements for maintaining their accounting licenses.

“Those quality control failures prevented the Firm from identifying that more than 1,100 Firm personnel, including more than 250 of its auditors, were involved in improper answer sharing—either by providing or receiving answers—in connection with tests for mandatory training courses covering topics that included professional independence, auditing, and accounting,” according to the PCAOB order. “After discovering the training-related misconduct in February 2020, KPMG Australia reported the matter to the PCAOB within 15 days and began implementing remedial policies and procedures.”

In an emailed September 15 statement, a spokesperson said KPMG Australia had also taken disciplinary action against 1,131 people related to the misconduct, “including verbal or written cautions and written warnings being communicated to the majority of individuals who were involved.”

Further, “KPMG confirmed warnings plus remuneration consequences on 46 people, including 16 partners; and 2 partners departed the firm as a result of the investigation,” the spokesperson said.

In particular, the spokesperson said that the firm began an investigation in February last year to examine potential misconduct by its employees regarding internal Independence Training. After quickly identifying the improper conduct, the firm called out the behavior in firm-wide communications to all partners and staff in February and March 2020. After reporting the issue to regulators, the firm immediately started to implement a remediation plan.

The spokesperson said that the firm’s partners and people had to complete a new independence test in early March 2020. Moreover, KPMG Australia implemented additional educational programs to try to prevent any future misconduct.

“While we moved quickly to get on the front foot with our response to this matter almost 18 months ago, it is important today to come full circle and be transparent and reinforce to our partners and people that this behaviour is totally unacceptable. It represented not only a breach of our Code of Conduct, but clearly does not align with our values,” KPMG Australia CEO Andrew Yates said in a statement. “I’m disappointed because the conduct reflects on all of us. Everyone at our firm is now absolutely clear that there are non-negotiable expectations of behaviour aligned with our values. Our partners and people understand that unethical behaviour has no place in the values-based culture at KPMG.”

Yates emphasized that the PCAOB recognized that the firm treated this matter seriously.

“In ordering these sanctions, the Board took into account the Firm’s extraordinary cooperation in this matter, including self-reporting, substantial assistance, and personnel and policy actions,” according to the PCAOB order.

“The behaviour struck at the heart of our culture and that’s why it was crucial we acted quickly and decisively,” Yates added. “It is also why we need to learn from this experience.”

The firm said that it is sharing the details of the investigation with its people, confirming the PCAOB’s disciplinary actions taken against the firm.


This article originally appeared in the September 16, 2021 edition of Accounting & Compliance Alert, available on Checkpoint.

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