Corporate Governance

PCAOB to KPMG: Time to Shape Up

By Tamar Weinrib

Auditors have been lobbying Congress for the imposition of liability caps ever since the collapse of Arthur Anderson in 2002 but a recent Public Company Accounting Oversight Board ("PCAOB") report on KPMG confirms that auditors need accountability for the procedures they use when conducting client audits.  In fact, the importance of how audits are conducted prompted sections of the final report of the SEC Advisory Committee on Improvements in Financial Reporting as recently reported on PomTalk. 

The most recent auditor to face scrutiny is KPMG and that scrutiny confirms the need for clear and comprehensive auditing procedures and accountability when those procedures are not implemented.  The PCAOB, which inspects the largest auditors every year, inspected 24 of KPMG's offices from April 2007 through January 2008.  In its report, the PCAOB noted that the auditor did not do enough work to support its opinions at ten different companies.  The report detailed situations in which KPMG should have performed additional tests to confirm its clients' valuations and assertions, as well as to notice instances where a client had strayed from GAAP.  An example of one specific deficiency is that two of KPMG's independent fair-value estimates of ten securities did not match the client's estimates. KPMG went to the issuer's traders to find out how they had come up with the valuations but KPMG did not test the information on which the traders had based their assessments.  KPMG responded to the PCAOB report by correcting the cited deficiencies but it did not amend any of its opinions as a result.

Full post as published by PomTalk on August 18, 2008 (boomark / email).