1.   KPMG

KPMG Fined Record $25 Million in Exam-Cheating Scandal (Attachment 32.1).

2.   KPMG’s Netherlands unit agreed to pay a $25 million fine over claims of exam cheating and misinforming investigators, the largest monetary penalty imposed on an auditing firm by the Public Company Accounting Oversight Board.

3.   KPMG Accountants NV failed to take adequate steps to identify and investigate misconduct in which employees provided answers or access to questions on exams, in violation of the PCAOB’s quality-control rules, the U.S. audit regulator. The tests for the firm’s mandatory training courses, which cover topics such as US audit standards, professional ethics and independence, are aimed at helping auditors maintain their professional certifications to perform certain types of audits.

4.   The answer-sharing occurred from 2017 to 2022 and involved hundreds of professionals, including partners and senior leaders such as the now former head of assurance, Marc Hogeboom, the PCAOB said. The firm repeatedly misrepresented its knowledge of the misconduct to the PCAOB, the regulator said.

5.   Hogeboom agreed to pay $150,000 and is permanently barred from associating with a registered accounting firm. Neither KPMG nor Hogeboom admitted to or denied the PCAOB’s claims, the regulator said. KPMG declined to comment on the circumstances of Hogeboom’s exit from the firm in July 2023.

6.   “The PCAOB will not tolerate exam cheating nor any other unethical behavior, period,” Erica Williams, chair of the audit overseer, said. “Impaired ethics erode trust and threaten the investor confidence our system relies on.”

7.   The Regulator said that, during the probe, the firm submitted inaccurate representations of its awareness of the issue to investigators and failed to correct them.

8.   The firm claimed it had no knowledge of answer-sharing before a 2022 whistleblower report, even though members of the firm’s management and supervisory boards who signed off on that submission to the PCAOB cheated themselves, the regulator said. KPMG Netherlands’ CEO, Stephanie Hottenhuis, learned the submissions were inaccurate but didn’t inform anyone until months later, when a second whistleblower came forward, the PCAOB said.

9.   The PCAOB and the Dutch Authority for the Financial Markets, the Netherlands’ financial-markets regulator, conducted parallel investigations. The AFM said it separately placed KPMG Netherlands under enhanced supervision. Both regulators ordered the firm to evaluate and strengthen its policies around preventing and detecting improper answer-sharing.

10.   KPMG Netherlands has reviewed its approach to mandatory testing, made meaningful changes to its learning and development programs, and implemented controls to monitor whether training tests are being completed appropriately, Hottenhuis said. Senior people who participated in answer-sharing have been sanctioned and some of them have left the firm, she added. 

11.   “The conclusions are damning, and the penalty is a reflection of that,” she said. “I deeply regret that this misconduct happened in our firm.”

B.   DELOITTE

12.   The $25 million fine far eclipsed the previous largest PCAOB penalty against an auditing firm, an $8 million levy against Deloitte’s Brazil unit (Attachment 221.2). in 2016 for alleged wrongdoing including issuing false audit reports and attempting to cover up audit violations.

13.   The PCAOB on Wednesday also fined Deloitte’s Indonesia and Philippines units for $1 million apiece, saying deficiencies in their quality controls led to widespread answer-sharing on internal training tests.

14.   The Deloitte units self-reported these matters to the PCAOB and implemented comprehensive corrective actions, a Deloitte spokeswoman said.

C.   ERNST YOUNG

15.   The Securities and Exchange Commission, which oversees the PCAOB, in 2022, imposed its largest levy on an audit firm over an exam-cheating probe, fining Ernst Young $100million (Attachment 221.3).. EY failed to report the scandal to regulators who had asked the firm about such misbehaviour, the SEC said at the time.

D.   OTHERS & GENERAL

16.   Despite it being a PCAOB record, a $25 million fine is too small for a Big Four accounting firm to serve as a significant deterrent, but the permanent barring of an executive is a sign of progress, said Roy Van Brunt, a former assistant chief accountant at the SEC. KPMG reported $36 billion in global revenue for the year ended last September. 

17.   The fine against Hogeboom is tied for the largest monetary penalty against an individual in a PCAOB case. Jonathan B. Taylor, an audit partner at New York-based Spielman Koenigsberg & Parker, in 2022 was fined $150,000 (Attachment 221.4). for allegedly misleading investigators. Hogeboom didn’t immediately respond to a request for comment. 

18.   “It’s a defect in the executives who let answer-sharing go on that needs to be addressed,” Van Brunt said.

E.   Further Details

Should you require any clarification or explanations in respect of the above entities, please feel free to contact them.

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Asif S Kasbati (FCA, FCMA & LLB)

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