SEC fines KPMG £4.8m over energy company audit failures

Paterniano Del Favero
Agosto 16, 2017

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.

KPMG has agreed to pay more than $6.2 million to settle Securities and Exchange Commission charges that the accounting firm failed to properly audit the financials of an oil and gas company that reported that assets valued at less than $5 million were worth almost $500 million.

"Auditing firms must fully comprehend the industries of their clients", said Walter E. Jospin, director of the SEC's Atlanta Regional Office, in a statement.

Before the firm issued its audit report, Riordan told KPMG's national office about an SEC subpoena seeking information from Miller Energy on the valuation of the Alaska assets, the commission said. "KPMG retained a new client and failed to grasp how it valued oil and gas properties, resulting in investors being misinformed that properties purchased for less than $5 million were worth a half-billion dollars". The partner in charge of the job, John Riordan, also settled to charges, agreeing to a $25,000 fine and a suspension to practice before the SEC. That means he cannot participate in either audits or financial reporting for public companies, although he can apply for reinstatement after two years.

Without admitting or denying the charges the SEC had brought against it, Miller Energy agreed to pay $5 million in civil penalties in a 2016 settlement.

KPMG were fined $6.2 million.

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.

In 2015 Miller Energy was charged with accounting fraud and reached a settlement paying the SEC a $5m penalty. Audit regulation has ratcheted up considerably since then, and firms have taken significant measures to address audit approaches that failed to adequately challenge management assertions.

"Big Four" accounting firms KPMG and PwC have both been handed multi-million-pound fines for auditing failures, amid growing concerns about the quality of audits from the major providers.

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