The latest inspection report from the PCAOB for KPMG is out today. In it the PCAOB cites KPMG for “audit deficiencies”, and seven specific audits from their sample where they considered those deficiencies so significant that , “it appeared that the Firm, at the time it issued its audit report, had not obtained sufficient competent evidential mater to support its opinion on the issuer’s financial statements”.
This report, issued July 27, 2007 for an inspection that took place between May and December of 2006, is now much more timely than the reports had been in the past. In the past, Firms could make the excuse that the issues were old and had already been addressed. But now we’re getting pretty fresh.
“In reviewing the audits, the inspection team identified matters that it considered to be audit deficiencies. Those deficiencies included failures by the Firm to identify or appropriately address errors in the issuer’s application of GAAP. The deficiencies also included failures by the Firm to identify or appropriately address material weaknesses in internal control. In addition, the deficiencies included failures by the Firm to perform, or to perform sufficiently, certain necessary audit procedures.”
It’s also interesting to recall that when Arthur Andersen was indicted, some said that it was because they had irritated the SEC and DOJ’s last nerve. There had been several issues that AA had been called on, and they always promised everything would get better. It was rumored that the US Department of Justice was tired of their broken promises and finally decided that they were so incorrigible that they had to be taken out.
However, amongst the Big 4, there are lawsuits pending, stock options backdating misses, large settlements resolving accusations of accounting malfeasance or negligence and similar poor reports from the PCAOB. The collective incorrigibility has now surpassed, by far, the chronic ineptitude, incompetence and intransigence to correct their problems that AA had demonstrated.
And yet, the standard has now changed to, “Too Few To Fail.”