KPMG Pays $6.2MN Settlement To SEC Over 'Audit Failures'

Paterniano Del Favero
Agosto 16, 2017

KPMG LLP will pay more than $6.2 million to resolve allegations that it didn't adequately audit an oil and gas company's financial statements, the SEC said August 15 In re KPMG LLP , S.E.C., Admin. Proc. File No. 3-18110, 8/15/17.

KPMG issued an unqualified audit of oil and gas company Miller Energy Resources in 2011, despite the fact that the company had overvalued various assets bought in Alaska by 100 times their real worth. The company originally estimated the Alaska assets at $4.5 million, but later reported them to be $480 million in its fiscal year 2010 financial statements. The allegedly overstated valuation helped the Knoxville, Tenn. -based penny-stock company get listed on the New York Stock Exchange, where it traded as high as nearly $9 per share in 2013, according to the SEC.

The SEC stated that KPMG and John Riordan, KPMG's engagement partner, failed to properly assess the risks and did not provide adequate staff.

Among other audit failures identified by the SEC, KPMG and Riordan did not adequately consider and address facts known to them that should have raised serious doubts about the company's valuation, and they failed to detect that certain fixed assets were double-counted in the company's valuation.

In 2015 Miller Energy was charged with accounting fraud and reached a settlement paying the SEC a $5m penalty.

"Auditing firms must fully comprehend the industries of their clients", SEC Regional Office Director in the state of Georgia Walter Jospin said.

The firm said it has resolved the issue.

The SEC's order relating to KPMG and Riordan is here.

Without admitting or denying the findings, KPMG agreed to be censured by the SEC and to pay $4,675,680 in disgorgement of all the audit fees it received from Miller Energy, along with $558,319 in interest and a $1 million penalty.

These audit failures have just cost the Big Four's US practice $6.2m (£4.8m) in fines and disgorgement of audit fees, plus "significant" undertakings created to improve its system of quality control, in a settlement with the US Securities & Exchange Commission. Riordan, who has been the managing partner of KPMG's Knoxville, Tenn., office since 2013, agreed to pay $25,000 in penalties and be suspended from appearing or practicing before the SEC as an accountant.

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