Attestation Update – A&A for CPAs

Technical stuff for CPAs providing attestation services

Archive for the ‘Audits’ Category

KPMG agrees to $50 million fine from SEC. The details are really bad.

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Image courtesy of Adobe Stock.

Oh, remember that post about the SEC considering a $50M fine against KPMG?  Initial report suggested it was for gaining access to the list of engagements which were going to be inspected by PCAOB.

It is much worse.

The firm is fined for altering workpapers based on the inspection list. In addition, there was a lot of cheating on the tests for CPE courses, including a class required by the SEC.

The SEC says KPMG has agreed to settle and pay $50M.

If you want to read the gory details for yourself, you can do so:

This is for real. Seriously.

By the time you finish reading this post or other reports on the SEC’s action, you may be wondering whether there needs to be an assertion the source of information for this post was neither The Onion nor Babylon Bee.

Reports of setting your own passing score for an ethics test could make you wonder if it is very early April. “Cooperate and graduate” exchanges of test answers with the engagement partner and your audit team makes one wonder whether we have entered some sort of alternate reality.

You may want to glance at the linked documents and verify for yourself they are for real.

I assure you the above documents are from the SEC.gov website.

SEC action

In part II of the administrative action/cease & desist order, KPMG admits the facts described in part III.

Here are some highlights of part III.

First cause of action

The first cause of action by the SEC is the firm obtained the list of engagements which were going to be inspected by PCAOB and then altered workpapers which had not yet hit the lock-down date.

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Written by Jim Ulvog

June 17, 2019, 9:22 am at 9:22 am

Posted in Audits

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SEC considering a $50M fine against KPMG

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It will take a bigger stack of currency than shown above if the SEC follows through with what they are considering. Image courtesy of Adobe Stock.

The Wall Street Journal reported on June 13, 2019 that the SEC is considering a fine of $50,000,000 against the Big 4 firm KPMG for it gaining access to the highly confidential list of audits scheduled for inspection by PCAOB.

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Written by Jim Ulvog

June 14, 2019, 10:20 am at 10:20 am

Posted in Audits

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Two convictions for former-KPMG staff gaining access to PCOAB inspection list

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Back in March a jury returned convictions for two of the players in the effort to get a list of the audits which were scheduled to be inspected by PCAOB.

(Yeah, yeah, conviction was in March and I’m mentioning it now in June. I’m just a tad bit late to the story but still want to discuss it.)

A senior level former-partner, David Middendorf, was found guilty on 4 of 5 counts. He was the National Managing Partner for Audit Quality and Professional Practice Group, in the firm’s Department of Professional Practice. That means he was the top technician in the national office of top technicians.

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Written by Jim Ulvog

June 14, 2019, 9:20 am at 9:20 am

Posted in Audits

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Exposure drafts propose change to definition of materiality for audit and attestation standards.

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The Auditing Standards Board has issued exposure drafts to subtly change the definition of materiality in the SAS and SSAE literature. Both exposure drafts are titled Amendments to the description of the concept of materility and can be found here.

A Journal of Accountancy article describes the proposed changes:  ASB seeks alignment of materiality definition.

The exposure draft gives a four page history of how the definition of materiality has evolved over the last several decades.

What the proposed changes would do is shift the definition of materiality in the audit and attestsation literate to match what is used by the US courts, PCAOB, SEC, and FASB. Currently the definition is aligned with IASB and IAASB.

I will quote portions of one paragraph in the exposure draft and make some comments.

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Written by Jim Ulvog

June 7, 2019, 8:11 am at 8:11 am

Posted in Audits

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CPA sanctioned by California Attorney General over audit of charity

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The California AG negotiated a settlement with a charity for their alleged overvaluation of medical GIK. I say alleged because the charity, three present or former board members, the charity’s insurance company, and the external auditor all deny in the settlement they did anything wrong.

The alleged scheme, according to the AG, was the charity used two other charities, which it formed, to buy medicine in the Netherlands and then donate it back to the ‘parent’, which then recognized GIK at US prices.

The AG asserts that over the course of 25 or more transactions, the purchase of about $225,000 of medicine by the two controlled charities generated gift-in-kind revenue of about $34,900,000 in the sanctioned charity.

Of note for readers of this blog is that the CPA providing an external audit was sanctioned as part of the negotiated settlement. She audited the charity and signed its 990s. She also audited one of the controlled charities and signed their 990s.

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Written by Jim Ulvog

June 4, 2019, 10:23 am at 10:23 am

News flash for CPAs: auditor reports will be changing again for 12/31/20 audits (SAS 134, 135)

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Reaction of many CPAs to the accelerating rate of change facing the profession. Image courtesy of Adobe Stock.

On May 8, 2019, the Auditing Standards Board of the AICPA issued two new SASs:

The AICPA press release is here.

SAS 135 is only 36 pages long, but SAS 134 at 261 pages in length is a bruiser.

Essentially, 134 will replace the audit literature that discusses the auditor’s report (AU-C 700), modification of the audit report (AU-C 705), and emphasis-of-matter sections (AU-C 706). Wording and format of audit reports and entire range of modifications will all be changing.

Effective date is years ending on or after December 15, 2020. That means these will first apply for 12/31/20 audits performed in late winter/spring of 2021.

Seems like a long time in the future, but might be worth setting some time aside to start sorting through the changes.

Written by Jim Ulvog

May 24, 2019, 7:00 am at 7:00 am

Posted in Audits

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Trial of former partner at KPMG starts today

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One former partner at KPMG and a former PCAOB staffer get their day in court today, February 11, 2019. Actually, it will be about four weeks in court, according to Michael Rapoport of the Wall Street Journal: KPMG Ex-Partner Goes on Trial in ‘Steal the Exam’ Scandal.

David Middendorf was a KPMG partner until April 2017. He was National Managing Partner for Audit Quality and Professional Practice Group, in the Department of Professional Practice (DPP). He reported to the Vice Chair of Audit.

Jeffrey Wada was a PCAOB Inspections Leader from February 2012 through February 2017.

Both are in court today defending themselves against charges they received and leaked, respectively, the list of KPMG audits which were scheduled for inspection by PCAOB.

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Written by Jim Ulvog

February 11, 2019, 8:04 am at 8:04 am

Posted in Audits

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