AUDITING THE AUDITORS

The Public Company Auditing Oversight Board (A United States Federal Authority based in Washington DC) was established under the Sarbanes-Oxley Act 2002 to “conduct an annual inspection of each registered accounting firm that regularly audits reports for more than 100…clients”.

In 2004 the federal board selected at random nineteen (19) different KPMG audits for investigation and review. (See the PCAOB release No. 104-2005-088)

Our consultant forensic accountants in examining the KPMG performance found that the nineteen (19) audits had produced a total of seventy-four deficiencies. (On average nearly four deficiencies per audit). This average however tells us little. By percentage frequency distribution of these audit deficiencies by clusters we have the following table.


DISPLAY X

Percentage frequency distribution of KPMG Audit Deficiencies

Audit Deficiencies – None Number – 0 % Frequency 0.0
Audit Deficiencies – One Number – 9 % Frequency 12.2
Audit Deficiencies – Two-three Number – 10 % Frequency 13.5
Audit Deficiencies – Four – Six Number – 6 % Frequency 8.1
Audit Deficiencies – Seven or more Number – 49 % Frequency 66.2
Total Audit Deficiencies – 74 Total % Frequency 100.0

The pattern is clear.

Fact one

Of all the KPMG audit deficiencies revealed by the Federal Oversight Board no audit escaped censure-a deficiency of one kind or another. All those reviewed were either found inadequate, negligent or inaccurate in some specific respect.

Fact two

Of all the audit deficiencies revealed by the Federal Oversight Board nearly one half reported a single deficiency. Frequently however this deficiency was of considerable importance to the efficacy of audit.

Fact three

Of all the KPMG audit deficiencies revealed by the Oversight Board a quite significant number revealed six or more audit errors. High error multiples were more common place than might have been expected.

While the Oversight Board is careful to point out the smallness of the random sample and the repair mechanisms that KPMG were asked to implement, the board nevertheless concluded:-

“The KPMG audit deficiencies included failures by KPMG to identify and/or appropriately address:- errors in generally accepted accounting principles.

The board went on to say that ‘failures on the part of KPMG to sufficiently perform certain necessary audit procedures were notable in their evaluation.’”

The board also complained that KPMG had “failed in many instances to obtain sufficient competent evidence (evidential matter) to support its opinion on the clients financial statements.”

On the basis of this federal evaluation report it would be difficult for KPMG to claim that they were satisfied with the audit work undertaken.

Yet this is what they have claimed in Mauritius for their audit of Leaderguard Spot Forex.