KPMG agreed Friday to pay $8.2 million to settle charges by the Securities and Exchange Commission that the public accounting firm violated rules that require auditors to remain independent from the public companies they’re auditing and to ensure they maintain their objectivity and impartiality.
The SEC issued a separate report the same day about the scope of the independence rules, cautioning audit firms that they’re not permitted to loan their staffers to audit clients in a manner that results in the staff acting as employees of those companies.
An SEC investigation found that KPMG broke auditor independence rules by providing prohibited non-audit services such as bookkeeping and expert services to affiliates of companies whose books they were auditing. Some KPMG personnel also owned stock in companies or affiliates of companies that were KPMG audit clients, further violating auditor independence rules.
“Auditors are vital to the integrity of financial reporting, and the mere appearance that they may be conflicted in exercising independent judgment can undermine public confidence in our markets,” said John T. Dugan, associate director for enforcement in the SEC’s Boston Regional Office, in a statement. “KPMG compromised its role as an independent audit firm by providing prohibited non-audit services to companies that it was supposed to be auditing without any potential conflicts.”
The violations occurred at various times from 2007 to 2011.
According to the SEC’s order for administrative procedings, KPMG provided services including restructuring, corporate finance and expert services to an affiliate of one company that was an audit client. KPMG provided services like bookkeeping and payroll to affiliates of another audit client. In a separate instance, KPMG hired an individual who had recently retired from a senior position at an affiliate of an audit client. KPMG then loaned him back to that affiliate to do the same work he had done as an employee of that affiliate, which resulted in the professional acting as a manager, employee and advocate for the audit client.
Without admitting or denying the findings, KPMG agreed to pay $5,266,347 in disgorgement of fees received from the three clients plus prejudgment interest of $1,185,002. KPMG additionally agreed to pay a penalty of $1,775,000 and implement internal changes to educate firm personnel and monitor the firm’s compliance with auditor independence requirements for non-audit services.
KPMG will engage an independent consultant to evaluate such changes, according to the SEC.
Check out SEC, DOL Enforcement: Big Four Accounting Firms Must Disclose China-Related Records on ThinkAdvisor.