September 22, 2018

KPMG Used Confidential Inspection Info to Snatch BBVA Away From Rivals, Report Says

If you missed this late last week, Francine McKenna of MarketWatch detailed how KPMG used access to confidential Public Company Accounting Oversight Board inspection information to poach a client from its Big 4 rivals.

The client, Spanish bank BBVA, was one of nearly a dozen KPMG clients caught up in the audit inspection scandal. Others include Citigroup, Credit Suisse, and Deutsche Bank, according to court documents obtained by MarketWatch.

The Justice Department in January brought criminal charges against five former KPMG executives and one former PCAOB employee for their roles in the scandal, in which confidential PCAOB audit inspection details were leaked ahead of time to the firm.

McKenna wrote on June 21 that because of the European Union’s mandatory audit rotation rules, BBVA in 2016 was forced to switch from an audit relationship with Deloitte’s Spanish affiliate and solicit bids from other audit firms.

Confidential information around those bids gave KPMG a secret advantage over PwC and EY, which also were eligible to bid on the BBVA audit, she noted:

Brian Sweet, a former partner at KPMG, used his contacts at the audit regulator PCAOB, which was his former employer, to obtain highly confidential data about the audits of BBVA and Banco Santander, according to a new document filed in the case.

Sweet and his PCAOB contacts had access to information about all the largest audit firms, not just KPMG. Sweet pleaded guilty on January 5 to conspiracy and wire fraud and is cooperating with the authorities.

Emails obtained during KPMG’s internal investigation of the scandal were turned over to the prosecutors in the case against the former KPMG officials. The correspondence spells out how KPMG gained an advantage over its rivals.

The email correspondence was between Sweet and KPMG Spain audit partner Dabie Tsai. In one of the emails, Sweet attached “an internal and confidential PCAOB comment form for a KPMG competitor, Deloitte Spain, and its audit of Banco Santander that discussed specific ways in which Deloitte had failed to adequately test the valuation of its allowance for loan loss at that bank,” McKenna wrote.

PwC won the Banco Santander audit from Deloitte in 2016, and BBVA chose KPMG as its new auditor beginning in 2017. And according to PCAOB records, Tsai was the partner who signed the audit for BBVA in 2017, McKenna wrote.

[MW]

Image: iStock/MorelSO

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SHOCKER: Doesn’t Appear that Stanford Auditors were Doing Any Auditing

allen-stanford_1018295c.jpgLast week’s indictment of Allen Stanford has brought up the always popular question when fraud, occurs: “Who are the auditors that were asleep at the wheel of this disaster?”
Well, in this case, the auditors were a local UK two-person shop, CAS Hewlett, which must be Queen’s English for Friehling & Horowitz.
It doesn’t appear that CAS Hewlett has a website, but they’ve been doing the Stanford “audits” for at least 10 years, so obv they’re legit. PwC and KPMG both have offices on Antigua but Stanford preferred to stay with its “trusted firm”. Totally understandable.
And the best part? The founder of the firm, Charlesworth “Shelly” Hewlett died in January, approximately a month before the story broke on the Ponz de Stanford.
This all adds up to who-the-fuck-knows if audits were even occurring and for us to speculate if Shelly needed to get got because Stan knew that the poo and fan were coming together. Just sayin’.

PCAOB: The Rodney Dangerfield of Bureaucracies

pcaob.gif It’s tough being part of a bureaucracy, especially if you’re doing something as glamarous as babysitting auditors. The CIA, FBI, NSA have got it easy. You get to catch bad guys, use guns, and Hollywood makes movies about you. Aside from the warrantless wiretaps and otherwise general big brotherishness, it’s cool.
The PCAOB doesn’t get that luxury. They get to poke around auditors’ work and then tell them how much they suck at it. Not so fun for anybody. They also get to write auditing standards. Take the watchdog aspect, multiply it times infinity, and that’s about the amount fun we’re talking about for writing rules on auditing.
But now people are saying they’re too slow in writing these I-already-want-to-kill-myself boring rules? Yep:

“Given how little they’ve accomplished in the standards-setting area, they don’t get a passing grade,” says Lynn Turner, a former chief accountant for the SEC.
Turner says he and a group of investor advocates wrote to the PCAOB in 2004, asking it to improve fraud standards. But the work remains undone, he says.
Bill Gradison, the board member whose term expires in October, calls the criticism fair. “We’ve been much slower than other standards writers,” he says.
By comparison, the International Auditing and Assurance Standards Board, which sets international auditing standards, among other duties, finished revising its own standards in March. The process, which included 37 standards, took about five years

Man, now comparisons to the Europeans. They’re looking for some new blood at the PCAOB though, since Mark Olson is retiring as Chairman and another board member’s term is expiring.
But don’t you go calling them lazy! “the PCAOB is taken seriously by the auditing community and deserves credit for trying. ‘Anyone who says it isn’t is off the wall,'”
What a ringing endorsement.

COMPLIANCE WATCH: Oversight Board Sets Sluggish Pace
[WSJ]