KPMG's Japanese affiliate is facing a $500,000 penalty from the Public Company Accounting Oversight Board (PCAOB) due to quality control deficiencies related to journal entry testing. The PCAOB has mandated that KPMG Japan conducts a thorough review and evaluation of its policies and procedures concerning journal entry testing. The regulator highlighted that the firm's existing policies were deemed inadequate to provide reasonable assurance that its auditors were conducting testing in accordance with applicable standards.
The identified violations occurred over the period from 2019 to 2021, according to the PCAOB's order. During this timeframe, it was found that KPMG Japan's system of quality control lacked sufficient monitoring procedures to ensure effective journal entry testing. Notably, the order points out a specific instance in 2020 where an audit with deficient journal entry testing was not appropriately escalated or addressed. This failure contributed to the persistence of similar testing issues in the subsequent year.
PCAOB Enforcement Director Robert Rice emphasized the critical role of firms' systems of quality control in ensuring compliance with auditing standards. He stated, "When those systems are inadequate, audit quality suffers, and firms can expect to be subject to disciplinary action." KPMG Japan has not immediately provided a comment on the penalty.
In a separate development, the PCAOB issued fines to six firms for violations related to communications with audit committees. As part of this, KPMG Argentina and KPMG Brazil each received $40,000 penalties, while Deloitte Luxembourg was assessed a $50,000 fine. The regulatory actions underscore the importance of adherence to auditing standards and effective communication in maintaining audit quality.
By fLEXI tEAM