• Big 4

    A Running List of Unanswered Questions About the KPMG Audit Inspection Conspiracy

    By | January 23, 2018

    Updates appear below

    If we learned anything from yesterday’s indictment of six accountants — five of whom were employed by KPMG — it’s that there are even more questions that remain unanswered. Some of these questions are simple and some of them are complicated, but it seems worth the time to list them here.

    • Is the U.S. Attorney or the Securities and Exchange Commission conducting other investigations related to this matter? Is the threat of criminal charges being used by the SEC to wrestle more settlements? UPDATE: Francine McKenna’s post from yesterday stated that during a call with reporters “the SEC’s co-director of enforcement Steve Peikin told reporters that the investigation regarding additional individuals or organizations is continuing.”
    • Is KPMG under investigation for criminal or civil offenses? At what point, if at all, do the activities of these partners, and their proximity to the top of the firm, implicate the entire firm?
    • If criminal charges are not pending against KPMG, what led the Department of Justice to reach that conclusion? Same question goes for the SEC.
    • Why is Scott Marcello, the former vice chair of audit not named in the indictment or the SEC orders? Did he, or is he currently, cooperating with authorities?
    • To what extent were Partners 1 through 4 from the indictment aware of the nature of the information or instructions they were given as it related to the work they were being asked to do?
    • What about the conversation between Brian Sweet and Partner-5 caused Partner-5 to report the information — that his engagement would be inspected by the PCAOB — to his superior, who then informed KPMG’s Office of General Counsel?
    • Why was Brian Sweet the only person to cut a deal? Are any of the others facing charges being given a chance to cooperate? (Considering the penalties, I suggest they take a deal if offered.) UPDATE: Here is indictment against Sweet. He pleaded guilty to the conspiracy charge and one count of wire fraud.
    • Were Sweet, Cynthia Holder, or Jeffrey Wada approaching their contacts at other Big 4 firms about positions?
    • Who is the data analytics firm that KPMG retained to help predict which engagements would be inspected by the PCAOB? Have other Big 4 firms used this firm to help with their efforts to predict the PCAOB’s selections? What other tactics are firms using to predict these selections?
    • UPDATE: Tammy Whitehouse at Compliance Week rightly wonders if the inspection results should be restated.

    This will suffice for now. If you have others that you think belong. Let me know and I’ll update this list.


    • guest

      How many ex-Andersen people are reading this and saying “And KPMG doesn’t get dissolved as a firm over this?!”

      • Corporate Liaison

        That’s a big leap and the market could not handle 23000 hitting the bricks overnight But then again it wasn’t so long ago KPMG was operating under a Deferred Prosecution Agreement for the tax stuff

        • guest

          Nevermind the employees. The market couldn’t handle having just three global firms to choose from for auditing and everything else. And KPMG knows this.

        • Big4Veteran

          Don’t forget the Scott London thing. KPMG did a pretty good job separating itself from London’s actions…but all of this does call into question the quality of people that KPMG is hiring, and the quality of people in leadership positions.

      • Ron Burgundy

        The AA fraud was much worse. You had partners with zero independence signing off on Enron audit reports, knowing damn well they were committing fraud. The kpmg thing is a bunch of partners being unethical, but they never defrauded investors.

    • James Ulvog

      Great questions. A few minor items for the list:

      *How many people were previously aware that hiring a data analytics firm to predict which engagements would be inspected is actually a thing?

      *Re: predicting engagements to be inspected – How successful are such predictions? What is done with the information?

      *When will the SEC drop the hammer on workpaper cleanup?

      *How much damaging information about other individuals was gleaned by Office of General Counsel but didn’t make it into the indictment?

    • Big4Veteran

      What’s worse, all the workpaper cleanup that took place for numerous KPMG audit clients, or Arthur Andersen employees shredding documents they thought might be subpoena’d for one audit client?

      Fortunately for KPMG, with only 4 firms remaining, they are probably too big to fail at this point.

    • sludgemonkey

      Rumor is that KPMG will merge with BDO. They will introduce a new audit methodology called BDOK with all documentation in the PMG (Practice Management Guide). The BDOK PMG will run exclusively on Samsung smartphones as that has worked well with the FBI/DOJ.

      Alternative names considered included FUBAR and ATTEST.POS

      • Ron Burgundy

        This rumor is ridiculous, just like the rest of your trash posts

        • sludgemonkey

          Salamander salad better than you’d first imagine