January 19, 2019

Foreign Affiliates of Big Audit Firms Screwed Up Some Stuff

bdo kpmg deloitte zimbabwe

The Securities and Exchange Commission fined foreign affiliates of BDO, Deloitte, and KPMG for skirting oversight of the PCAOB. Here’s the skinny:

According to the SEC’s orders, the Zimbabwe affiliates of Deloitte & Touche and KPMG improperly audited the majority of assets and revenues of a publicly traded company without registering with the PCAOB. The two principal auditors – KPMG’s affiliate in South Africa and BDO’s Canadian affiliate – were registered with the PCAOB but improperly relied upon the work of the two unregistered foreign component auditors to complete their audits of the company. This violated PCAOB standards requiring sufficient analysis and inquiry when using the work of another auditor.

You follow? KPMG South Africa relied on the work of KPMG Zimbabwe (an unregistered firm) and BDO Canada relied on the work of Deloitte Zimbabwe (an unregistered firm). They should not have done that. In each case, the work of the Zimbabwe firm constituted more than 20 percent of the assets or revenues. In fact, the orders give examples of years audited where the work of the Zimbabwe firms accounted for 100 percent of the issuer’s revenues. That’s significant!

I confess that I am ignorant of how big audit firms keep all these international audit relationships above board, but couldn’t the KPMG South Africa guy just call the KPMG Zimbabwe guy and say, “Hey, are you registered with the PCAOB?” And if the response turns out to be, “Nope, sorry, I don’t even know what you’re talking about,” the KPMG South Africa guy knows that he has to go back to the drawing board. Nothing even remotely close to this appears to have happened in either case. Great job, everyone.

Is the fact that this didn’t happen a result of poor communication? Laziness? Corruption? All three? None of the firms admitted or denied the findings, so we’re left to our imaginations. See you for the next one.

[SEC, BDO Canada, Deloitte Zimbabwe, KPMG Zimbabwe, KPMG South Africa]

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