US audit watchdog censures KPMG Canada for repeatedly failing to accurately disclose who performed audits

TORONTO, March 16, 2025 – KPMG Canada and eight other member firms of the KPMG global network repeatedly failed to accurately disclose the participation of other accounting firms in KPMG audits. The Public Company Accounting Oversight Board in the United States levied $700,000 against KPMG Canada and $3.375 million total for "failing to accurately disclose on PCAOB Form AP the participation in firm audits of other accounting firms, including, among others, component auditors, shared service centers, and critical audit matter hubs." 

The nine firms are:

·         KPMG LLP (“KPMG Canada”)

·         KPMG (“KPMG Australia”)

·         KPMG Auditores Independentes Ltda. (“KPMG Brazil”)

·         Somekh Chaikin (“KPMG Israel”)

·         KPMG S.p.A. (“KPMG Italy”)

·         KPMG Cárdenas Dosal, S.C. (“KPMG Mexico”)

·         KPMG LLP (“KPMG UK”)

·         KPMG Samjong Accounting Corp. (“KPMG Samjong,” South Korea)

·         KPMG AG (“KPMG Switzerland”) 

KPMG Canada was also one of four firms (including KPMG Australia, KPMG Brazil, KPMG UK) that failed to communicate to audit committees the name, location, and planned responsibilities of one or more other accounting firms. 

In 2022, PCAOB Chair Erica Williams promised enforcement with "renewed vigilance" at the 14th International Institute on Audit Regulation. The audit watchdog imposed record civil penalties for three years in a row.

“It is essential that investors and audit committees know where issuers’ audits are being conducted and by whom so that they can make informed selection and ratification decisions. These violations prevent investors and audit committees from obtaining important information,” said PCAOB Chair Erica Y. Williams. “Firms must take these obligations seriously and ensure their required communications and reporting are complete and accurate.” 

According to its enforcement action, the PCAOB found that KPMG did not establish appropriate policies and procedures to safeguard against the practice, nor did the firm communicate with corporate audit committees “the names, locations, and planned responsibilities of other independent public accounting firms or other persons, were not employed by the auditor, that performed audit procedures in the current period audit.” 

PCAOB censure discloses corporate clients of KPMG Canada

The PCAOB enforcement action is explicit in naming Canadian corporations and the KPMG member firms that KPMG Canada used during its audit engagements. For example, KPMG Canada audited such household names as the Bank of Montreal, Suncor Energy, and IAMGOLD. During the engagements, “component auditors” KPMG Barbados, PwC US, and KPMG Ghana respectively participated in the audits, information that was not disclosed by KPMG Canada on the requisite forms. 

The PCAOB report also reveals that KPMG Canada used a “shared service center” (SSC) located in India called KPMG Global Delivery Center Private Limited (“GDC”) in connection with 20 audits. GDC in turn used personnel from KPMG India and a public firm called B S R & Co. LLP, which is headquartered in Mumbai, India. The Canadian companies audited include household names such as Kinross, Pembina, and Rogers. The firm did not report the involvement of the SSCs in requisite forms but later amended the forms to include them. 

The use of SSCs by auditors has a long history of more than three decades. SSCs, according to research, “although not in widespread use in auditing … can reduce costs and improve service quality in the face of market competition and declining audit fees whilst keeping the control and knowledge within the firm hierarchy. The advancement of technological tools for auditing and increasing shortage of qualified personnel (further underscore the advantages of SSCs for carrying out routine tasks (Daugherty and Dickins, 2009).” 

The PCAOB has identified audit team reliance on SSCs as a key area of audit risk. Recent research has found that “SSC involvement negatively impacts perceived audit quality, and the additional outsourcing of complex tasks exacerbates this effect … when outsourcing additional high-complexity tasks, the interaction between location and task complexity leads to a significant negative impact on perceived audit quality.” 

Settlement to include remedial actions

In 2021 the US audit watchdog inspected nine KPMG audits, and found a 44 per cent deficiency rate. In 2022, as reported by Canadian Accountant, KPMG Canada was fined US$150,000 by the PCAOB for failing to accurately disclose who worked on the audit of a Celestica subsidiary in Romania. As reported by Canadian Accountant, the PCAOB found deficiencies in five out of 10 KPMG Canada audits it inspected in 2023, as well as issues of independence. 

In 2023, Canadian Accountant reported that KPMG, the fourth largest of the Big Four worldwide, was the second largest firm in terms of revenue in Canada. This followed several years in which KPMG outperformed other members of the Big Four in terms of acquiring new audit clients. 

The US audit watchdog has accepted an offer of settlement from KPMG Canada and the eight other member firms. According to its press release, “without admitting or denying the findings, each firm consented to a PCAOB order that censures the firm and imposes civil money penalties totaling $3.375 million. Each firm also consented to undertake certain remedial actions designed to improve firm quality control policies and procedures in the areas where failures occurred.” 

Colin Ellis is a contributing editor to Canadian Accountant.