The Public Company Accounting Oversight Board released a report Tuesday on its 2015 inspection of KPMG LLP, finding problems with 20 of the 49 companies whose audits by the firm were inspected.The PCAOB also reviewed the firm’s audit work on three other engagements in which it played a role but was not the main auditor. Deficiencies in 17 of the audits related to testing controls for purposes of the opinion on internal controls over financial reporting, or ICFR, while deficiencies in 14 of the audits pertained to the substantive testing done for purposes of the opinion on the financial statements. Of the 14 audits that had substantive testing deficiencies, seven included deficiencies in substantive testing that the PCAOB inspection team determined were caused by a reliance on controls that were excessive in light of deficiencies in the testing of controls.
The report found that some of the deficiencies were “of such significance that it appeared to the inspection team that KPMG, at the time it issued its audit report, had not obtained sufficient appropriate audit evidence to support its opinion that the financial statements were presented fairly, in all material respects, in accordance with the applicable financial reporting framework and/or its opinion about whether the issuer had maintained, in all material respects, effective internal control over financial reporting. In other words, in these audits, the auditor issued an opinion without satisfying its fundamental obligation to obtain reasonable assurance about whether the financial statements were free of material misstatement and/or the issuer maintained effective ICFR.”
However, the PCAOB acknowledged that the fact that one or more deficiencies in an audit reached this level of significance does not necessarily indicate that the financial statements are misstated or that there are undisclosed material ICFR weaknesses. “It is often not possible for the inspection team, based only on the information available from the auditor, to reach a conclusion on those points,” said the report.
KPMG noted that the latest inspection report nevertheless represented an improvement over the previous year’s report. “The PCAOB inspection process continues to play an important role in enhancing audit quality for KPMG and the profession on behalf of investors and the capital markets,” said a statement emailed by KPMG spokesman Bob Wade. “KPMG remains steadfast in our commitment to performing consistently high-quality audits. We’re pleased with the positive progress seen in our 2015 PCAOB report and look forward to building on these improvements through continued focus and investment. This includes robust monitoring and support programs, extensive root cause analyses of issues identified by the PCAOB and our own monitoring process, deployment of new resources and technology, increased training, and tailored communications to support our people as they set priorities to deliver quality audits.”