KPMG Faces Audit Questions over Collapsed United States Silicon Valley Bank & Signature Bank, Provided Clean Audit Opinion on 24th Feb 2023 & 1st March 2023 Respectively
18th March 2023 | Hong Kong
KPMG (one of big 4 audit firms) is facing audit questions over the collapsed of United States Silicon Valley Bank & Signature Bank, having just provided a clean audit opinion on 24th Feb 2023 (14 days before collapse) & 1st March 2023 (11 days before collapse) respectively. KPMG has been Silicon Valley Bank for 29 years and Signature Bank for 22 years. Earlier in 2023 February, KPMG has reached a private settlement (undisclosed) with creditors of collapsed UK outsourcing firm Carillion with $8.4 billion of debts (£7 billion), with KPMG alleged to be negligent in audit work and KPMG having paid $17.3 million (£14.4 billion) to UK authority for forgery in May 2022 (UK Financial Reporting Council, FRC). In 2022 December, the United States Public Company Accounting Oversight Board (PCAOB) has fined KPMG global network a total of $7.7 million and banned or suspended 4 auditors for violating professional audit standards, cheated on training exams, unregistered & non-participating KPMG units incurring audit hours, signed blank work papers & failure to cooperate with authority inspection. Also in 2022 December, Singapore “Water Company of the Year in 2006” Hyflux has submitted a $504 million (S$684 million) filing against audit firm KPMG for negligence in auditing Hyflux accounts between 2011 to 2017 (Filing: Hyflux, Hydrochem and Tuaspring alleged Hyflux financial statements for 2011 to 2017 – Tuaspring desalination and power plants were materially misstated). More info below.
“ KPMG Faces Audit Questions over Collapsed United States Silicon Valley Bank & Signature Bank, Provided Clean Audit Opinion on 24th Feb 2023 & 1st March 2023 Respectively “
KPMG Reaches Private Settlement with Creditors of Collapsed UK Outsourcing Firm Carillion with $8.4 Billion of Debts, Alleged Negligent in Audit Work & Paid $17.3 Million to UK Authority for Forgery
18th February 2023 – KPMG has reached a private settlement (undisclosed) with creditors of collapsed UK outsourcing firm Carillion with $8.4 billion of debts (£7 billion), with KPMG alleged to be negligent in audit work and KPMG having paid $17.3 million (£14.4 billion) to UK authority for forgery in May 2022 (UK Financial Reporting Council, FRC). The UK outsourcing firm collapse of Carillion in 2018 led to thousands of job losses, and delay and collapsed of hundreds of projects, including hospitals, schools, roads, prisons and stadium of English Premier League football club Liverpool. Creditors of the collapsed UK outsourcing firm Carillion with $8.4 billion of debts (£7 billion) had paid out more than $250 million in dividends because they had relied on KPMG audits.
Carillion plc was a British multinational construction and facilities management services company headquartered in Wolverhampton in the United Kingdom, prior to its liquidation in January 2018.
KPMG Fined $7.7 Million for Violating Professional Audit Standards, Cheated on Training Exams, Signed Blank Work Papers, Unregistered & Non-Participating KPMG Units Incur Audit Hours
8th December 2022 – The United States Public Company Accounting Oversight Board (PCAOB) has fined KPMG global network a total of $7.7 million and banned or suspended 4 auditors for violating professional audit standards, cheated on training exams, unregistered & non-participating KPMG units incurring audit hours, signed blank work papers & failure to cooperate with authority inspection. The violations were committed by KPMG Colombia (Firm: $4 million fine, Individual: $25,000 fine), KPMG UK ($2.6 million fine) and KPMG India (Firm: $1 million fine, Individual: $75,000 fine). PCAOB Chair Erica Y. Williams: “These actions should send the message to KPMG and all other registered firms that the PCAOB is committed to rooting out misconduct wherever it occurs and will employ all sanctions at its disposal to protect investors and improve audit quality.” See below for full statement.
About the PCAOB – The PCAOB is a nonprofit corporation established by Congress to oversee the audits of public companies in order to protect investors and further the public interest in the preparation of informative, accurate, and independent audit reports. The PCAOB also oversees the audits of brokers and dealers, including compliance reports filed pursuant to federal securities laws. Further information about the PCAOB enforcement activity is available on the PCAOB website. Firms or individuals wishing to report suspected misconduct by auditors, or to self-report possible misconduct, may visit the PCAOB Tips and Referrals page.
PCAOB Sanctions Three Firms and Four Individuals From KPMG Global Network, Imposing $7.7 Million in Fines
Imposing $7.7 Million in Fines, PCAOB Sanctions Three Firms and Four Individuals From KPMG Global Network
6th Dec 2022 – Failure to cooperate with a PCAOB inspection, cheating on training exams, signing off on blank work papers, and improper use of an unregistered firm are among a range of violations that occurred from 2016 to 2021
The Public Company Accounting Oversight Board (PCAOB) today announced seven settled disciplinary orders sanctioning firms and individuals from KPMG’s global network for violations of professional auditing standards, quality control standards, and PCAOB rules, totaling $7.7 million in penalties.
In addition to fines, today’s sanctions include barring or suspending four auditors from participating in public company audits and requiring three KPMG member firms to review and improve as necessary their quality control policies and procedures. One of the sanctioned firms, KPMG S.A.S. (“KPMG Colombia”), admitted that it failed to cooperate with a PCAOB inspection. The firm also agreed to retain an independent consultant to recommend improvements in the firm’s quality controls with respect to internal training.
“These actions should send the message to KPMG and all other registered firms that the PCAOB is committed to rooting out misconduct wherever it occurs and will employ all sanctions at its disposal to protect investors and improve audit quality,” said PCAOB Chair Erica Y. Williams.
“The breadth of the misconduct uncovered in these matters and the aggregate size of the sanctions imposed demonstrate the global reach of the PCAOB’s oversight and the Board’s heightened vigilance in enforcement,” said Mark A. Adler, PCAOB Acting Director of Enforcement and Investigations. “I commend my Division of Enforcement and Investigations colleagues for their dedication in pursuing these significant cases and their commitment to protecting investors.”
KPMG Colombia
- Firm: $4 Million Penalty
- Individual: $25,000 Penalty
In the KPMG Colombia matter, the PCAOB sanctioned the firm and three of its associated persons – José Daniel Meléndez Giménez (“Meléndez”), Edgar Mauricio Ramírez Rueda (“Ramírez”), and Marco Alexander Rodríguez Ramírez.
(“Rodríguez”) – for violating PCAOB rules and standards in connection with the PCAOB’s 2016 inspection of the firm. The PCAOB also charged the firm with violating quality control standards relating to audit documentation and the firm’s internal training program.
The PCAOB found that, in 2016, the firm and various individuals improperly altered audit documentation for two audits in anticipation of a PCAOB inspection, and provided that altered documentation to PCAOB inspectors. Meléndez, the engagement partner for one of those audits, directed the improper alterations for that audit, and Ramírez and Rodríguez participated in the misconduct. The noncooperation resulted in part from deficiencies in KPMG Colombia’s system of quality control, which failed to provide reasonable assurance that (1) audit documentation was protected against improper alteration and (2) appropriate control was maintained over administrative passwords that could be, and were, used to backdate changes to work papers.
The PCAOB also found that from at least 2016 to 2020, KPMG Colombia violated PCAOB quality control standards related to integrity and personnel management. Those quality control failures prevented the firm from identifying extensive, improper answer-sharing among firm personnel in connection with tests on internal training exams covering topics that were relevant to compliance with PCAOB rules and standards.
KPMG Colombia will pay a $4 million civil money penalty and will also be required to undertake certain remedial actions concerning its system of quality control. In addition, the firm was censured and will be required to complete a further investigation under the supervision of an independent consultant to determine the extent of exam cheating among the firm’s personnel and to recommend appropriate remedial actions. Meléndez, Ramírez, and Rodríguez have agreed to settlements that bar them from being associated with a registered public accounting firm. They will have the right to file a petition for Board consent to reassociate with a registered firm, after three years (Meléndez), two years (Ramírez), and one year (Rodríguez), respectively. Meléndez will additionally pay a $25,000 civil money penalty, a reduced amount following consideration of his financial resources. Ramírez and Rodríguez would have paid penalties, but the penalties were waived after consideration of their financial resources. The firm, Meléndez, Ramírez, and Rodríguez admitted their violations involving the failure to cooperate with the PCAOB’s 2016 inspection and the improper alteration of documents.
PCAOB enforcement staff members Ramón L. Torres, Joshua M. Cutler, Michael Plotnick, Tima Hawes, and Kristina Shin conducted the investigation.
KPMG UK: Two Disciplinary Orders Imposing $2.6 Million in Penalties
The PCAOB issued two disciplinary orders against KPMG LLP (“KPMG UK”).
In one order, the PCAOB sanctioned KPMG UK for violating PCAOB quality control standards related to integrity and personnel management. Similar to KPMG Colombia, KPMG UK failed to detect or prevent extensive, improper answer sharing on tests for mandatory internal training courses. From 2018 until March 2021, hundreds of individuals from KPMG UK and KPMG Resource Centre Private Limited, an India-based entity that provides support for KPMG UK’s issuer audit work, engaged in improper answer sharing. The improper answer sharing occurred in connection with tests for training courses covering topics that included auditing, accounting, and professional independence. All of the professionals implicated in the answer sharing performed work for KPMG UK’s Assurance practice.
Without admitting or denying the findings in the order concerning the improper answer sharing, KPMG UK was censured and agreed to pay a $2 million civil money penalty and to review and improve as necessary its quality control policies and procedures to provide reasonable assurance that its personnel act with integrity in connection with internal training.
In a second order, the PCAOB sanctioned KPMG UK for failing to reasonably supervise an unregistered audit firm in four consecutive audits of a public company client. In particular, KPMG UK allowed the unregistered Romanian audit firm KPMG Audit SRL to play a substantial role in four consecutive audits in which KPMG Audit SRL incurred as many as 74% of the total audit hours. Compounding the failure, in three of the four audits, KPMG UK erroneously reported that PCAOB-registered firm KPMG Romania SRL, not KPMG Audit SRL, had participated in the audits.
Additionally, KPMG UK was found to have violated, in connection with the same four audits, PCAOB standards relating to due professional care, audit planning, audit committee communications, and quality control. The Board also found that the firm had made several inaccurate filings on PCAOB Form AP regarding other audit clients, disclosing that registered KPMG affiliates had participated in various audits, when in fact separate, unregistered firms had done the work. The firm has since corrected the Form APs at issue and agreed to review and improve its quality control policies and procedures as necessary.
Without admitting or denying the findings in the second order, KPMG UK consented to the PCAOB’s order and the disciplinary action. The PCAOB imposed a $600,000 civil money penalty, censure, and quality control undertakings.
PCAOB enforcement staff members Thomas McCann, David Florenzo, and Thomas Barry conducted the investigation concerning improper exam answer sharing. Enforcement staff members Noah A. Berlin, Rebecca J. Mealey, Judy Fish, and Tima Hawes conducted the investigation concerning KPMG UK’s failure to supervise the unregistered Romanian affiliate.
KPMG India
- Firm: $1 Million Penalty
- Individuals: $75,000 Penalty
The PCAOB also sanctioned KPMG Assurance and Consulting Services LLP (“KPMG India”) and KPMG India engagement partner Sagar Pravin Lakhani (“Lakhani”). The sanctions are based on KPMG India’s quality control failures and Lakhani’s supervisory and documentation failures in connection with a practice of signing off on blank placeholder work papers during the 2017 audit of a public company.
The PCAOB found that, in the course of that audit, Lakhani and other members of the KPMG India engagement team signed off on dozens of blank work papers. The blank work papers were replaced with completed work papers, in many cases after the issuance of the audit report, but the sign off dates were not updated. As a result of this practice, the work papers did not appropriately reflect the dates on which the audit work was actually completed and reviewed. KPMG India was aware that its audit software allowed personnel to modify or update audit documentation without modifying the sign off date.
By signing off on blank work papers and failing to appropriately supervise engagement team members who he knew were doing the same, Lakhani violated PCAOB documentation and supervision standards and failed to act with due professional care. In addition, KPMG India violated PCAOB quality control standards because its policies and procedures failed to provide adequate assurance that its personnel would document audit work in compliance with PCAOB standards.
The PCAOB imposed a $1 million civil money penalty on KPMG India, censured the firm, and ordered the firm to review and improve as necessary its quality control policies and procedures. The PCAOB also imposed a $75,000 civil money penalty on Lakhani, censured him, and suspended him from associating with a registered public accounting firm for one year.
PCAOB staff members Arnold Ramos, Samuel C. McCoubrey, and Tiffany Johnson conducted the investigation. William Ryan and John Abell supervised the four investigations described above.
Bankrupt Hyflux Submits $684 Million Filing Against KPMG for Alleged Negligence in Auditing Accounts Between 2011 to 2017
1st December 2022 – Singapore “Water Company of the Year in 2006” Hyflux has submitted a $504 million (S$684 million) filing against audit firm KPMG for negligence in auditing Hyflux accounts between 2011 to 2017 (Filing: Hyflux, Hydrochem and Tuaspring alleged Hyflux financial statements for 2011 to 2017 – Tuaspring desalination and power plants were materially misstated). Hyflux was founded as Hydrochem in 1989 by Olivia Lum Ooi Lin, who was one of Singapore’s most successful woman entrepreneur, with only S$20,000 in capital. Olivia Lum grew Hyflux into a billion-dollar company (market capitalisation), had net worth of more than $200 million, and was named EY World Entrepreneur of the Year in 2011 (Singapore). In 2018, Hyflux filed for bankruptcy with a total debt of S$1.17 billion. In November 2022, Hyflux former CEO, CFO & 4 independent directors had been charged for securities disclosure offences in Singapore court, with Singapore largest bank DBS Bank investigated for its role in the offering of 2011 Hyflux 6% Preference Share. More info below.
Singapore Water Company Hyflux CEO Olivia Lum, CFO & 4 Independent Directors Charged for Securities Disclosure Offences, DBS Investigated for Role in 2011 Hyflux 6% Preference Share Issuance
17th November 2022 – Singapore “Water Company of the Year in 2006” Hyflux former CEO, CFO & 4 independent directors had been charged for securities disclosure offences in Singapore court, with Singapore largest bank DBS Bank investigated for its role in the offering of 2011 Hyflux 6% Preference Share. The individuals charged include Hyflux former CEO Olivia Lum Ooi Lin under the Securities & Futures Act (SFA) and Companies Act (CA), for agreeing not to release information of Singapore Tuaspring integrated water & power project (disclosures required under the listing rules of the Singapore Exchange, SGX), not releasing the same information in the offering of 2011 Hyflux 6% Preference Share, and failing to ensure accounting standards for its financial statements for the FY2017. Former CFO Cho Wee Peng, and the 4 independent directors (Teo Kiang Kok, Gay Chee Chong, Murugasu Christopher & Rajskar Kuppuswami Mitta) are also charged for failing to disclose information on Tuaspring. Hyflux was founded as Hydrochem in 1989 by Olivia Lum Ooi Lin, who was one of Singapore’s most successful woman entrepreneur, with only S$20,000 in capital. Olivia Lum grew Hyflux into a billion-dollar company (market capitalisation), had net worth of more than $200 million, and was named EY World Entrepreneur of the Year in 2011 (Singapore). In 2018, Hyflux filed for bankruptcy with a total debt of S$1.17 billion.
Hyflux Investigation
Hyflux was founded as Hydrochem in 1989 by Olivia Lum Ooi Lin, who was one of Singapore’s most successful woman entrepreneur, with only S$20,000. Olivia grew the company into a billion company (market capitalisation), had net worth of more than $200 million, and was named EY World Entrepreneur of the Year in 2011 (Singapore). In 2018, Hyflux filed for bankruptcy with a total debt of S$1.17 billion.
The investigations were conducted by Commercial Affairs Department (CAD) of the Singapore Police Force (SPF), the Monetary Authority of Singapore (MAS) and the Accounting and Corporate Regulatory Authority (ACRA).
If convicted, they face imprisonment of up to seven years, a fine not exceeding $250,000, or both on each charge under the SFA section 203; imprisonment of up to two years, a maximum fine of $150,000 or both on each section 253 SFA charge, and a maximum fine of $50,000 on the charge under the Companies Act.
Joint Singapore News Release: SPF, MAS, ACRA
- Singapore Police Force (SPF)
- Monetary Authority of Singapore (MAS)
- Accounting and Corporate Regulatory Authority (ACRA)
Singapore, 17 November 2022… The former Chief Executive Officer of Hyflux Ltd (Hyflux), Ms Lum Ooi Lin, its former Chief Financial Officer, Mr Cho Wee Peng, and four independent directors of Hyflux at the material time were charged in court today for disclosure-related offences under the Securities and Futures Act (SFA). Ms Lum was further charged with an offence under the Companies Act (CA) for her failure in ensuring Hyflux’s compliance with accounting standards.
2. The charges followed joint investigations carried out by the Commercial Affairs Department of the Singapore Police Force, the Monetary Authority of Singapore and the Accounting and Corporate Regulatory Authority (ACRA) (collectively, the Authorities). They are as follows:
Against Lum Ooi Lin:
(a) One count of section 203(2) read with section 331(1) SFA, for consenting to Hyflux’s intentional failure to disclose information relating to the Tuaspring Integrated Water and Power Project (Tuaspring), when such disclosure was required under the Singapore Exchange Listing Rules (Listing Rules);
(b) One count of section 253(1)(b) read with sections 253(4)(b)(i) and 277(3) SFA for Hyflux’s omission to state the same information relating to Tuaspring in the 2011 Offer Information Statement (2011 OIS). The 2011 OIS was issued for the offer of S$200 million, 6% preference shares on 13 April 2011; and
(c) One count of section 201(5) read with section 204(1) CA for failing to ensure that Hyflux made disclosures required under the accounting standards for its financial statements for the financial year ended 31 December 2017. This included the failure to disclose the breach of a subsidiary’s loan agreement that permitted its lenders to demand accelerated repayment.
Against Cho Wee Peng:
(a) One count of section 203(2) read with section 331(1) SFA for conniving in Hyflux’s intentional failure to disclose information relating to Tuaspring, when such disclosure was required under the Listing Rules.
Against four Independent Directors of Hyflux, namely Teo Kiang Kok, Gay Chee Chong, Murugasu Christopher and Rajskar Kuppuswami Mitta:
(a) One count each of section 203(2) read with section 331(1) SFA, for their neglect in connection with Hyflux’s intentional failure to disclose information relating to Tuaspring, when such disclosure was required under the Listing Rules; and
(b) One count each of section 253(1)(b) read with sections 253(4)(b)(i) and 277(3) SFA, for Hyflux’s omission to state the same information in the 2011 OIS.
3. If convicted, the accused persons face:
(a) imprisonment of up to seven years, a fine not exceeding $250,000, or both, on each section 203 SFA charge;
(b) imprisonment of up to two years, a fine of not exceeding $150,000, or both, on each section 253 SFA charge; and
(c) a fine not exceeding $50,000, on the CA charge.
4. The Authorities have also, in relation to the 2011 OIS, investigated DBS Bank Ltd under section 253(4)(d) of the SFA for its role as issue manager in the offer, and no further action will be taken after reviewing the evidence obtained.
5. The outcome of ACRA’s inspection on the audits conducted by KPMG, the auditors of Hyflux, will be finalised in due course.
Additional Information:
Securities and Futures Act (Cap 289, 2006 Rev Ed) (SFA)
Section 203(2) SFA
Section 203(2) SFA provides that an entity, the securities of which are listed for quotation on a securities exchange, shall not intentionally, recklessly or negligently fail to notify the securities exchange of such information as is required to be disclosed by the securities exchange under the listing rules or any other requirement of the securities exchange, if the person is required by the securities exchange under the listing rules or any other requirement of the securities exchange to notify the securities exchange of information on specified events or matters as they occur or arise for the purpose of the securities exchange making that information available to a securities market operated by the securities exchange.
Rule 703(1)(a) of the SGX Listing Rules provides that an issuer must announce any information known to the issuer concerning it or any of its subsidiaries or associated companies which is necessary to avoid the establishment of a false market in the issuer’s securities.
Section 253 SFA
Section 253(1)(b) read with 253(4)(b)(i) SFA provides that in the case of an offer made by an entity, each director or equivalent person of the entity shall be guilty of an offence, where an offer of securities is made in or accompanied by a prospectus, and there is an omission to state any information required to be included in the prospectus under section 243 or there is an omission to state any information required to be included in the profile statement under section 246, as the case may be.
Section 331(1) SFA
Section 331(1) SFA provides that where an offence under this Act committed by a body corporate is proved to have been committed with the consent or connivance of, or to be attributable to any neglect on the part of an officer of the body corporate, the officer as well as the body corporate shall be guilty of that offence and shall be liable to be proceeded against and punished accordingly.
Companies Act (Cap 50, 2006 Rev Ed) (CA)
Section 201(5) CA
Section 201(5) CA provides that directors of a company are responsible for laying before the company, at its annual general meeting, consolidated financial statements that comply with the requirements of the prescribed accounting standards in Singapore, and give a true and fair view of the financial position and performance of the company.
KPMG is a global organization of independent professional services firms providing Audit, Tax and Advisory services. KPMG is the brand under which the member firms of KPMG International Limited (“KPMG International”) operate and provide professional services. “KPMG” is used to refer to individual member firms within the KPMG organization or to one or more member firms collectively. KPMG firms operate in 143 countries and territories with more than 265,000 partners and employees working in member firms around the world. Each KPMG firm is a legally distinct and separate entity and describes itself as such. Each KPMG member firm is responsible for its own obligations and liabilities. KPMG International Limited is a private English company limited by guarantee. KPMG International Limited and its related entities do not provide services to clients.
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