US fines top Zim firms KPMG, Deloitte for improper audits

HARARE - The top US securities regulator on Tuesday charged local associates of two globally acclaimed audit firms, KPMG and Deloitte & Touche, for conducting audits without proper oversight from the Public Company Accounting Oversight Board (PCAOB) and using unregistered auditors.

The Securities and Exchange Commission (SEC) said that the Zimbabwean units of KPMG and Deloitte & Touche entered a plea to settle the charges by paying penalties and disgorging profits from the audits.

Disgorgement is repayment of ill-gotten gains that is imposed on wrongdoers. This means funds that were received through illegal or unethical business transactions are paid back with interest to those affected by the action.

Deloitte agreed to pay disgorgement and interest totalling $99 057 while KPMG  agreed to pay disgorgement and interest totalling $141 305.

The audit firms were accused of violating section 102 of the Sarbanes-Oxley Act which makes it unlawful for any person that is not a registered public accounting firm to prepare or issue, or to participate in the preparation or issuance of any audit report with respect to any issuer.

KPMG and Deloitte & Touche were also accused of using unregistered auditors as a cost cutting measure.

As per the SEC’s orders, the Zimbabwe affiliates of Deloitte & Touche and KPMG improperly audited the majority of assets and revenues of a publicly traded company without registering with the PCAOB.

“It’s in the best interest of Main Street investors that all firms substantially involved in the audit of a public company are properly registered with the PCAOB so they are subject to the oversight necessary to ensure accuracy and prevent fraud,” said Scott W. Friestad, associate director of the SEC’s Division of Enforcement in a statement.

“These unregistered foreign component auditors performed significant audit work outside the PCAOB’s regulatory purview, and the principal auditors failed to consider the registration status of these firms as they used their work.”  

The SEC charge sheet indicates that the commission had issued KPMG with a cease-and-desist order — an official order handed down by a government agency or court directing a person or entity to stop doing something immediately.

“On the basis of this order and respondent’s offer, the Commission finds that these proceedings arise out of KPMG Zimbabwe’s playing a substantial role in the audits of Issuer A (a publicly listed company audited by the firm) from at least 2013 through 2014 without being registered with the PCAOB.”

KPMG is an accounting firm located in Zimbabwe that is a member firm of KPMG International Cooperative (KPMG International), a Swiss entity. KPMG Zimbabwe has never been registered with the PCAOB, the statement reads.

“During this same period, Issuer A’s largest subsidiary, located in Zimbabwe, accounted for the majority of Issuer A’s consolidated assets and revenues.

“For example, for fiscal year 2013, this subsidiary accounted for approximately 70 percent of Issuer A’s consolidated total assets and 100 percent of Issuer A’s consolidated total revenues. KPMG Zimbabwe performed audit services for Issuer A by auditing the financial statements of this subsidiary.

“From at least 2013 through 2014, KPMG Zimbabwe played a substantial role in the preparation of audit reports for Issuer A, having audited most of Issuer A’s assets and substantially all of its revenues. As such, KPMG Zimbabwe was required to be registered with the PCAOB. However, KPMG Zimbabwe failed to register with the PCAOB.

“Section 102 of the Sarbanes-Oxley Act of 2002 makes it unlawful for any person that is not a registered public accounting firm to participate in the preparation or issuance of, any audit report with respect to any issuer.

“By participating in the preparation of audit reports for Issuer A, KPMG Zimbabwe violated Sarbanes-Oxley Section 102.

“In view of the foregoing, the Commission deems it appropriate and in the public interest to impose the sanctions agreed to in Respondent KPMG Zimbabwe’s Offer.

“Accordingly, it is hereby ordered that KPMG Zimbabwe shall cease and desist from committing or causing any violations and any future violations of Sarbanes-Oxley Section 102; and KPMG Zimbabwe shall, within 120 days of the entry of this Order, pay disgorgement of $30 000 and prejudgment interest of $2 757,71 and within 485 days of the entry of this Order, pay the remaining disgorgement of $99 410 and remaining prejudgment interest of $9 138, 12 for a total of $141 305,83 for transfer to the general fund of the United States Treasury, subject to Exchange Act 21F(g)(3). If timely payment of disgorgement is not made, additional interest shall accrue,” the charge sheet further reads.

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