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  • Writer's pictureDaniel Goelzer

Unredacted: KPMG’s 2022 Inspection Report

On April 26, the Public Company Accounting Oversight Board made public the complete 2022 KPMG PCAOB inspection report.  The version of the 2022 KPMG report that the PCAOB released in February was redacted to omit discussion of one of the KPMG engagements the PCAOB inspected in 2022.  See 2022 PCAOB Large Firm Inspection Reports, March 2024 Update

 

The material redacted from the original version of the 2022 KPMG inspection report was a description of the PCAOB’s findings concerning an audit client described in the unredacted report as Issuer N.  Issuer N is in the Information Technology sector. The PCAOB inspectors found a deficiency related to income taxes in Issuer N’s audit. The unredacted report states that KPMG “did not identify and evaluate a misstatement in a required disclosure under FASB ASC Topic 740, Income Taxes.2 (AS 2810.30 and .31).”

 

Neither the PCAOB nor KPMG have made any public statements concerning the reason for the original redaction or the subsequent release of the unredacted report.  As discussed in the March 2024 Update, the most likely explanation is that KPMG exercised its right under the Sarbanes-Oxley Act to appeal the PCAOB’s deficiency finding regarding Issuer N to the SEC.  Under the SEC rule governing appeals of inspection reports, the PCAOB may release only the portions of the report that are not subject to appeal while an appeal is pending.  Presumably, after the release of the redacted report, the SEC concluded that the PCAOB’s finding concerning Issuer N was correct, and the Board has now released the full report, including the description of the Issue N deficiency.

 

Below is a synopsis of the complete 2022 KPMG inspection report and an updated version of Table 1 in 2022 PCAOB Large Firm Inspection Reports, March 2024 Update

 

KPMG LLP.  The PCAOB reviewed 54 KPMG issuer audits, 43 of which were integrated audits of both the financial statements and ICFR.  In 16 of the 54 audits (30 percent), the PCAOB staff identified deficiencies of such significance that it appeared that the firm had not obtained sufficient appropriate audit evidence to support its opinion.  This compares to KPMG’s 26 percent deficient engagement rate in 2021.  Eleven of the engagements in Part I.A included deficiencies related to both the audit of the financial statements and ICFR, four included deficiencies in the financial statement audit only, and one included only an ICFR audit deficiency.  In one of the deficient engagements, the issuer’s financial statements were determined to be materially misstated and were subsequently corrected in a restatement; that issuer also disclosed material weaknesses in its ICFR.  The PCAOB described 42 audit deficiencies (0.78 deficiencies per inspection) associated with 47 auditing standards (0.87 standards per inspection) in the 16 engagements in Part I.A.  In Part I.B of the inspection report, the PCAOB identified 23 instances of noncompliance with PCAOB standards or rules that did not relate directly to the evidence the firm obtained to support an opinion.  In Part I.C., the Board described eight instances it had identified of potential non-compliance with independence rules and 24 instances that the firm had identified.



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