PCAOB Finds Fault with KPMG and PWC Audits

In 2012, the Public Company Accounting Oversight Board (“PCAOB”) conducted inspections of registered public accounting firms pursuant to the Sarbanes-Oxley Act of 2002  According to the PCAOB:

“The inspection process is designed, and inspections are performed, to provide a
basis for assessing the degree of compliance by a firm with applicable requirements
related to auditing issuers. The inspection process included reviews of aspects of
selected issuer audits completed by the Firm. The reviews were intended to identify
whether deficiencies existed in those aspects of the audits, and whether such
deficiencies indicated defects in the Firm’s system of quality control over audits. In
addition, the inspection included reviews of policies and procedures related to certain
quality control processes of the Firm that could be expected to affect audit quality.”

The PCAOB found significant fault with a number of audits performed by PricewaterhouseCoopers LLP (“PWC”) and KPMG. With respect to both firms, the inspection team considered certain of the deficiencies that it observed to be audit failures, meaning that the deficiencies in the audit were of such significance that it appeared that the firm, at the time it issued its audit report, had failed to obtain sufficient appropriate audit evidence to support its audit.  In one instance, KPMG revised its opinion on the effectiveness of the issuer’s internal control over financial reporting (“ICFR”) to express an adverse opinion following the inspection team’s primary inspection procedures.

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