PCAOB criticises KPMG audits

Hot on the heels of its high-profile tax shelter row, KPMG in the US has
faced fresh criticism from the Public Companies Accounting Oversight Board.

The PCAOB slammed KPMG over ‘deficiencies’ in the audits of public company
accounts last year – only one month after the firm admitted selling US tax
shelters and agreeing a $456m settlement with the Department of Justice.

The PCAOB said the Big Four firm’s US practice had failed to ‘perform certain
necessary audit practices’ in certain cases and that it had found ‘deficiencies’
in several of the 76 audits it reviewed between June and October 2004.

The US regulator highlighted significant ‘deficiencies’ in 19 cases, but did
not mention the companies involved. Shortcomings included a failure to recognise
and rectify flaws in how firms used accounting rules.

‘In some cases, the deficiencies identified were of such significance that it
appeared to the inspection team that the firm had not, at the time it issued its
audit report, obtained sufficient competent evidential material to support its
opinion on the [company’s] financial statements,’ the report said.

In response, KPMG said in a statement: ‘KPMG has reviewed the findings
identified during the inspection and discussed in the Report and has concluded
that, with one exception, no new facts came to our attention that caused us to
believe that our clients’ previously issued financial statements should be
restated or our auditors’ reports withdrawn. We have shared this conclusion with
the PCAOB.’

The PCAOB was created in 2002 to oversee how public companies are audited and
to help restore investor confidence in the aftermath of the Enron scandal.

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