Dive Brief:

• The Public Company Accounting Oversight Board (PCAOB) imposed $7.7 million in fines and sanctioned KPMG firms in the U.K., India and Colombia for several alleged violations, including exam cheating, signing off on blank work papers and improper use of an unregistered auditing firm.
• The PCAOB penalties — including suspending or barring four auditors from auditing public companies — stemmed from alleged breaches of standards for auditing and quality control as well as PCAOB rules, the board said.
• “These actions should send the message to KPMG and all other registered firms that the PCAOB is committed to rooting out misconduct wherever it occurs and will employ all sanctions at its disposal to protect investors and improve audit quality,” PCAOB Chair Erica Williams said in a statement.

Dive Insight:

KPMG pledged to improve operations at the three firms outside the U.S. that were targeted in the PCAOB crackdown.

“We acknowledge the findings of the PCAOB around our Colombia, India and U.K. firms,” Larry Bradley, KPMG’s global head of audit, said in a statement. “KPMG remains committed globally to the highest standards of quality and integrity.”

The PCAOB has sharpened enforcement since Gary Gensler, after assuming the post as chair of the Securities and Exchange Commission in April 2021, replaced board leadership and called on it to strengthen oversight of the accounting firms that audit publicly listed companies. Williams was sworn in as PCAOB chair in January.

In a 2022-2026 draft strategic plan, the board pledged this year to increase average penalties, enforce some rules for the first time and stage sweeps of auditors that may have violated standards.

The PCAOB, established after the Enron accounting scandal under the Sarbanes-Oxley Act of 2002, released the strategic plan for public comment in August.

The sanctions against KPMG underscore that tougher PCAOB enforcement extends beyond U.S. borders, according to Mark Adler, PCAOB acting director of enforcement and investigations.

“The breadth of the misconduct uncovered in these matters and the aggregate size of the sanctions imposed demonstrate the global reach of the PCAOB’s oversight and the board’s heightened vigilance in enforcement,” Adler said in a statement.

The PCAOB imposed a total of $2.6 million in penalties and issued two disciplinary orders against KPMG U.K. The firm allegedly failed to detect or prevent improper answer sharing by hundreds of employees on tests for mandatory internal training on auditing, accounting and professional independence, the board said.

The PCAOB also sanctioned KPMG U.K. for failing to sufficiently supervise a Romanian audit firm, KPMG Audit SRL, in four audits of a public company. In addition to imposing a civil money penalty, the board required quality control improvements.

“This kind of behavior is unacceptable at KPMG and will not be tolerated,” Jon Holt, CEO of KPMG U.K., said in a statement. “We took the appropriate disciplinary action with all those involved and have since put additional monitoring measures in place.”

KPMG Colombia was fined $4 million for violating board rules during a 2016 inspection and falling short of quality control standards in audit documentation and internal training. The PCAOB said it found that in 2016 KPMG Colombia altered documentation for two audits prior to a board inspection.

Also, from 2016 until at least 2020, KPMG Colombia allegedly violated PCAOB quality control standards and failed to identify answer-sharing among employees on internal exams related to compliance with board rules.

“KPMG Colombia has reached a settlement with the PCAOB regarding this matter,” a spokesperson said in a statement. “The firm is committed to delivering high quality service to clients and continues to take actions to strengthen its culture, governance and compliance programs.”

The PCAOB fined KPMG India $1 million for quality control failures, including a practice of signing off on dozens of blank work papers during the audit of a public company in 2017. KPMG India was allegedly aware that its audit software allowed staff to change documentation without changing the sign-off date.

The PCAOB ordered KPMG India to improve its quality control procedures.

“As a firm we are focused on delivering high quality audits and the conclusion of this matter, along with the enhancements we have made to our quality control systems, enables us to move forward,” a KPMG India spokesperson said.