The Public Company Accounting Oversight Board (PCAOB) identified deficiencies in half of the audits it inspected at KPMG’s US firm in 2017, with concerns that there might not have sufficient audit evidence to support the firm’s opinion in some instances
The inspection procedures included reviews of portions of KPMG’s work on 52 audits, which generally related to issuer year ends in 2016. Of these, 26 had deficiencies.
The most frequent cause for concern, in 17 audits, was the firm’s failure to sufficiently test the design and/or operating effectiveness of controls that included a review element and that the firm selected for testing.
Thirteen audits displayed evidence of failure to identify and test any controls that addressed the risks related to a particular account or assertion, and the same number demonstrated a failure to perform substantive procedures to obtain sufficient evidence as a result of relying too heavily on controls (due to deficiencies in testing controls).
For 10 audits, KPMG was found to have failed to sufficiently test significant assumptions or data that the issuer used in developing an estimate.
The three most common areas for audit deficiencies were identified as revenue, including allowances (11 audits); loans, including the allowance for loan losses (six audits); and Inventory, including related reserves (five audits).
The PCAOB pointed out that the portions of these audits that are reviewed often involve the most risky areas of the financial statements, leading to a heightened possibility of auditing deficiencies. In the 2017 inspection, the inspection team also assessed the firm's system of quality control related to issuer audits. Fifty of the 52 engagements inspected were integrated audits of both internal control and the financial statements. The inspection team identified deficiencies in both financial statement audits and audits of internal control over financial reporting (ICFR).
In a statement, KPMG said audit quality ‘has been and continues to be a top priority across all levels of KPMG.’ and that the firm is ‘committed to improving our performance and our system of audit quality control’ with ‘significant investments in our people, technology and governance’.
Report by Pat Sweet