A "Big Four" accounting firm paid $50 million to settle SEC charges for using stolen information to improve the firm's annual inspection results with the industry's watchdog agency, the Public Company Accounting Oversight Board ("PCAOB"). In addition, the firm was charged for using confidential information of another firm to gain a business advantage.
According to an SEC Order Instituting Proceedings, former senior members of the audit practice at KPMG LLP ("KPMG") obtained confidential PCAOB information to gain an advantage regarding an annual inspection of the firm. The effort resulted in a substantial improvement to KPMG's annual inspection results. The firm was also charged for the actions of a former KPMG partner, who allegedly used confidential information regarding the PCAOB's inspection of another audit firm to gain a competitive edge and earn new business for KPMG. In addition, KPMG audit professionals allegedly cheated on internal KPMG training exams by (i) sharing exam answers with one another and (ii) making unauthorized changes to the firm's server instructions to make their scores passable.
In addition to paying the fine, KPMG agreed to retain an independent consultant for at least one year to ensure the firm designed and implemented quality controls that reasonably assure compliance with all professional standards relating to ethics and integrity.
Commentary / Joseph V. Moreno
In describing the SEC's settlement with KPMG, Chair Jay Clayton described reliable financial statements as "the bedrock of our capital markets" and blasted KPMG's actions as "simply unacceptable." The seriousness with which the SEC has taken this matter illustrates the importance that auditors and compliance personnel lend to the ethical backbone of an organization, and highlights how devastating it can be when an audit firm itself is found to evade internal controls and engage in wrongdoing. While some have criticized the $50 million fine as insufficient for an enterprise with nearly $30 billion in annual revenue, it should be noted that it is the highest amount the SEC has ever imposed on an audit firm. It should also be noted that several of the former KPMG partners and a PCAOB official involved in the misconduct were criminally prosecuted for various federal conspiracy and wire fraud charges and are facing significant prison time.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
