Story time. Many, many years ago when my favorite show was the Snorks and my Big Wheel was my only mode of transportation, there was this kid on my block who was a real little shit. He constantly broke everyone’s toys and once ran over my plastic Good Luck Bear with his bike, permanently rendering the bear’s formerly cheerful tummy clover into a smudge of cheap paint and road dirt. Worse, he would constantly lead the other kids on our block in a chorus of “four eyes” at me, inspiring them to practically banish me from the neighborhood with their whiffle bats since we were obviously too young for pitchforks. The guy was a dick.
Although I could normally handle myself against him (he wasn’t that bright and could easily be bribed to leave me the fuck alone with half a Butterfinger), one day I’d had enough. I broke down crying and ran back into my house, pleading with my mom to do something. She flitted her hand at me and shrugged, “You can handle it.” So I wiped my snotty nose on the shoulder of my grungy Hands Across America t-shirt, marched back outside, stepped up to the dude (who, btw, was two years older than me, 40 lbs heavier than me, and lacking in my opthamologist-enhanced super vision), and decked his ass. Just flipped the guy over and shoved him ass-in-the-air into the pricky bushes lining his front yard. He never called me “four eyes” again.
Now, let’s be clear: I’m not an advocate of violence. I don’t believe in spanking children or screaming at puppies who crap on the floor. But sometimes your only solution is to beat the shit out of someone. And I believe the PCAOB has reached that point with KPMG.
While its Big 4 counterparts have been making strides in audit quality over the years, KPMG has somehow managed to get worse at this auditing thing. And this after they got busted poaching PCAOB talent in order to cheat on PCAOB inspections.
The wait for KPMG’s missing 2016 PCAOB inspection report is over. As proselytized by former PCAOB member Dan Goelzer last September, the delay was directly due to the PCAOB learning about KPMG getting tipped off to which clients were up for inspection, poisoning 11 of the initial audits.
In 22 of the 51 Audits reviewed and in three financial institution issuer audits reviewed as part of the inspection team’s original inspection plan, certain of the deficiencies identified were of such significance that it appeared to the inspection team that the Firm, at the time it issued its audit report, had not obtained sufficient appropriate audit evidence to support its opinion that the financial statements were presented fairly, in all material respects, in conformity with the applicable financial reporting framework and/or its opinion about whether the issuer had maintained, in all material respects, effective internal control over financial reporting (“ICFR”).
If you’re playing along at home, that’s a 43% failure rate deficiency rate which is pretty hilarious considering the whole point of cheating is A) not getting caught (failure #1) and B) doing better than you would have done had you relied on your shitty merits alone (failure #2).
The AWOL 2016 report would be enough to make fun of, but WAIT, there’s more!
The Santa Clauses over at the PCAOB have also blessed us with KPMG’s 2017 inspection report which somehow managed to be even worse than 2016’s. Of the 52 audits inspected by the PCAOB, 26 were shitty enough for the clients to technically be entitled for a refund if, say, audits were cheap Chinese goods and KPMG was Amazon. As we all know, that’s not how this works. Eighteen of the 26 “deficient” audits had issues with ICFR, for which I guess we can give KPMG a pass since it seems ICFR confounds even the highest caliber of auditors these days.
In its response to the 2017 report, KPMG pledged “continuous improvement” in their audit engagement performance and claimed — despite all evidence to the contrary — that “consistently executing quality audits” is their “top priority.” Yeesh. I hate to know what their lowest priority is if this is how they execute the top one.
At this point in the article you might think we’re done, but just like how I kicked that bully on my block in the shin after I decked his ass, there are even more blows to come. In addition to the pathetic 2016 and 2017 inspection reports, the PCAOB also released revised reports for 2014 and 2015, calling KPMG out for bullshitting about fixing their obvious audit problem. I mean, you can only say “we take the PCAOB’s criticisms seriously” a finite number of times times while continuing to suck at your one job before they finally get sick of your shit and slap you around for blowing smoke up their ass.
Go on, PCAOB, you can handle it.