Danny McCance 21 Aug 2019 04:14pm

PCAOB finds KPMG and PwC and affiliates lacking

The Public Company Accounting Oversight Board (PCAOB) has released a raft of audit reports finding deficiencies in relation to audits of US-listed companies by KPMG in the UK, Norway and South Africa, and with PwC in France and Canada

It was not all bad news for KPMG, as the firm in New Zealand was given a clean bill of health in the PCAOB’s 2018 inspection report.

In it’s 2018 inspection reports for KPMG UK and Norway and PwC Canada and France, and its 2017 report for KPMG South Africa, the PCAOB inspection team found “matters that it considered to be deficiencies in the performance of the work reviewed”.

In each of the inspections, the PCAOB reviewed sections of two issuer audits performed by the firms in question.

Each report also included a review of work on a single issuer audit engagement where each firm was not the principal auditor.

In four of the five cases, the PCAOB found, “Certain deficiencies 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).”

In other words, according to the PCAOB, the auditors had not acquired reasonable assurance that the audits in question were free of material misstatements or whether the companies themselves had “maintained effective ICFR”.

However, the story was slightly different in the case of PwC France, as the PCAOB said it had found a single deficiency that was pertained to adequate assurance in relation to IFCR.

KPMG South Africa said it was important to note that the review report was in relation to a 2017 inspection, and that this was prior to reforms it has made since.

In written response to the PCAOB, Wiseman Nkuhlu, executive chairman of KPMG South Africa, said that the firm remained “dedicated to evaluating and improving [its] system of quality control” and recognised its responsibilities to investors and other participants.

These words were echoed in a similar response by KMPG Norway’s head of audit, Lars Inge Petterson, while chair of audit at KPMG UK, Michelle Hinchliffe, said that a top priority was executing high-quality audits.

“We take the findings from the PCAOB inspection process seriously and have taken appropriate action to address them in a manner consistent with PCAOB auditing standards and KPMG policies and procedures,” she said.

“We remain fully committed to working constructively with the PCAOB to improve audit quality and build confidence in the auditing profession,” Hinchliffe added.

Meanwhile, Nicolas Marcoux, chief executive officer and senior partner at PwC Canada, said that in response to the findings, the firm had taken appropriate action by its own and PCAOB’s standards and recognised the value of the inspection process.

Bernard Gainnier, territory senior partner of PwC France and Francophone Africa, echoed these sentiments in his written response to the PCAOB report, inviting further dialogue with the US authority.

In February, PCAOB found faults in audit work of Deloitte Malaysia, EY Japan, KPMG and PwC Canada, as well as PwC Mexico and South Africa.

PwC in the UK was approved by the PCAOB in April, however EY did not fair so well.

In April, EY Denmark was given the green light but KPMG Japan was found lacking by the PCAOB.

PwC and KPMG Norway have been contacted for further comment.