Search

KPMG South Africa fined $275K for utilising an unregistered firm

Updated: 3 days ago

KPMG South Africa and two of its partners were penalised a total of $275,000 by the Public Company Accounting Oversight Board (PCAOB) for supervisory failures and violations of accounting regulations linked to the employment of an unregistered accounting company.

According to a press statement issued by the PCAOB on Monday, KPMG South Africa used an unregistered accounting firm, KPMG Chartered Accountant Zimbabwe, to undertake three audits of an undisclosed public company from 2015 to 2017.


KPMG Zimbabwe was not required to be registered with the PCAOB. According to the organisation, KPMG South Africa and its partner Cornelis Van Niekerk failed to reasonably supervise KPMG Zimbabwe so that its involvement in the audits conformed with PCAOB criteria.


KPMG South Africa was fined $200,000, Van Niekerk $50,000, and partner Coenraad Basson $25,000. Van Niekerk agreed to a two-year suspension from working as an associate of a licenced accounting firm, following which he must ask for reinstatement. Basson accepted to a one-year suspension from operating as a registered accounting firm associate.


KPMG reached a settlement without admitting or contesting the findings of the board.

The PCAOB observed that these were recurrent crimes for KPMG South Africa, which was fined $100,000 in 2018 by the Securities and Exchange Commission for utilising KPMG Zimbabwe in the same company's audits in 2013-14. As part of the enforcement action, KMPG Zimbabwe agreed to pay $141,000.


KPMG's South African branch was also embroiled in a corruption scandal when it was accused of assisting tax evasion and corruption by the Gupta family over the course of 15 years while auditing the books of various Gupta enterprises. In 2016, KPMG severed connections with the Gupta family.


The specifics: Aside from continuing to utilise an unregistered firm, KPMG South Africa, Van Niekerk, and Basson attempted to diminish KMPG Zimbabwe's involvement in the 2017 audits, making "unreasonable modifications" to avoid the PCAOB's substantial role registration requirement, according to the organisation. The firms incorrectly reported to the PCAOB on Form AP that KPMG Zimbabwe had only documented 17% of total audit hours, which the PCAOB stated constituted a 77% reduction in the actual audit hours KPMG Zimbabwe should have recorded.


“Given the global nature of many companies’ operations, multiple accounting firms are often involved in the audits of public companies,” said PCAOB Chair Erica Williams in the press release. “To protect investors, we will hold accountable firms or individuals who fail to appropriately supervise and disclose the participation of other accounting firms in their audits.”


Considerations for compliance: As part of the order, KPMG South Africa is required to review and analyse its quality control and other policies and procedures to verify that they comply with all regulatory obligations, including audit work undertaken or overseen by other accounting firms.


Within six months following the order, KPMG must provide a written report to the PCAOB's enforcement and investigations director detailing the policies and processes implemented to promote compliance with the organization's rules and regulations. The firm must officially declare to the PCAOB that the new policies and procedures addressed the issues adequately.


KPMG response: In an emailed statement, a KPMG spokeswoman stated that the settlement with the PCAOB "will enable all those engaged to move on."


“For KPMG South Africa, this means focusing on our continued commitment to deliver high-quality professional services to our clients, further building public trust,” the statement said.

By fLEXI tEAM

32 views0 comments