September 19, 2018

Where, Oh Where, Is KPMG’s 2016 Inspection Report?

KPMG’s 2016 inspection report has still not been published by the Public Company Accounting Oversight Board, and the PCAOB won’t say why—or if the report will ever see the light of day.

Compliance Week reports:

The Public Company Accounting Oversight Board published its 2016 inspection results for Deloitte in December 2017 followed by reports for EY and PwC in January 2018, but it has yet to publish a final 2016 report for KPMG. Soon after the three Big 4 reports were published, the Department of Justice and the Securities and Exchange Commission revealed charges of fraud and conspiracy against ousted audit leaders at KPMG and a dismissed inspection staffer at the PCAOB over allegations of cheating at KPMG on the inspection process.

I’ll go out on a limb and say that the cheating scandal is most likely why the report hasn’t been released yet.

Dan Goelzer, senior counsel at law firm Baker McKenzie and a former PCAOB member, told Compliance Week that the Sarbanes-Oxley Act requires the PCAOB to issue a report when they perform an inspection. But ….

“On the other hand, they could perhaps take the view that, if the integrity of the process is compromised, there was no real inspection in the statutory sense and, therefore no report can, or must, be issued,” he says.

In case you’ve been living under a rock the past eight months, former PCAOB inspector Jeffrey Wada and Cynthia Holder, who inspected KPMG for the PCAOB before joining the Big 4 firm, are accused of illegally leaking confidential information about planned KPMG inspections to firm executives, who allegedly encouraged the misdeed.

At the time, KPMG had a high rate of audit deficiencies, and the executives allegedly wanted the information to help the firm improve its inspection results. The cheating scandal went down from about May 2015 until February 2017 when KPMG finally caught wind that this was going on.

Holder and Wada were each indicted in January on charges of conspiracy to defraud, conspiracy to commit wire fraud, and two counts of wire fraud.

Three now-former KPMG executives—David Middendorf, national managing partner for audit quality and professional practice; Thomas Whittle, national partner-in-charge for inspections; and David Britt, co-leader of KPMG’s Banking and Capital Markets Group—face similar conspiracy charges as Holder and Wada, as well as three counts of wire fraud.

Their trial is scheduled to begin in February 2019.

A sixth participant in the alleged scheme, Brian Sweet, a former PCAOB associate director and former partner at KPMG, pled guilty to conspiracy and wire fraud charges shortly after he was arrested in January.

Sweet admitted that as he was leaving the PCAOB for a role with KPMG, he downloaded confidential inspection-related information that he provided to KPMG executives upon taking a position with the firm.

Goelzer told Compliance Week that it’s possible the PCAOB could issue some kind of combined report on both 2016 and 2017 inspections, but he said, “All just speculation on my part.”

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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]

PCAOB, We Need to Have a Talk

pcaob.gifPCAOB, we here at Going Concern want to help you get some respect. We really do.
We don’t think it’s fair that people think you’re slow at writing rules for auditors. Okay, maybe you could pick up the pace a little bit but we know that it takes a lot of work and patience to write those rules. But then we heard about this and we want to let you know that we aren’t angry, you’re just letting us down.
Reuters:

The U.S. audit watchdog voted on Thursday to defer its first inspection on 49 foreign auditors in areas such as the European Union, China and Switzerland for up to three years.

Like we said, we’re not mad. We’re disappointed.

US PCAOB delays 1st review of 49 foreign auditors
[Reuters]