PCAOB: Auditor Cheating reflects "inappropriate tone at the top"

Public Company Accounting Oversight Board (PCAOB) Chair Erica Y. Williams announced a record $25 million fine sanctioning KPMG Netherlands for widespread improper answer sharing and the firm's multiple misrepresentations about its knowledge of the misconduct.

"The widespread exam cheating went on for a period of five years, from 2017 to 2022, and involved hundreds of professionals, reaching as far as partners and senior firm leaders – including the firm’s former Head of Assurance, who is also facing a $150,000 penalty and permanent bar under today’s orders.

"The growth and breadth of exam cheating in this case was enabled by the firm’s failure to take appropriate steps to monitor, investigate, and identify the potential misconduct.

"Furthermore, during the course of our investigation, the firm submitted – and failed to correct – multiple inaccurate representations to the PCAOB.

"For example, the firm claimed to have no knowledge of answer sharing prior to a 2022 whistleblower report. Yet, this could not have been true because members of the firm’s Management Board and Supervisory Board who signed off on that submission to the PCAOB had, in fact, cheated themselves.

"But it doesn’t end there. KPMG Netherlands’ CEO learned the submissions were inaccurate and failed to inform anyone until months later, when a second whistleblower came forward. Only then did the firm correct the inaccurate representations to investigators.

"This misconduct reveals an inappropriate tone at the top and a complete failure by firm leadership to promote an ethical culture worthy of investors’ trust."

CAOB also announced $2 million in fines against Deloitte Indonesia and Deloitte Philippines for violations of PCAOB rules and quality control deficiencies that resulted in widespread answer sharing on internal training tests.

As of today, the PCAOB has imposed $34 million in penalties this year alone.

Since 2021, the PCAOB has sanctioned nine registered firms for exam cheating, including PwC China and PwC Hong Kong in November, 2023. [11455]

The largest source of funding for the PCAOB's $385 million budget comes from the companies whose financial statements must be audited by PCAOB-registered firms.