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The US audit regulator set up in the wake of Enron’s collapse two decades ago has set a record for fines in a single year, after a flurry of enforcement actions against accounting firms including PwC, Deloitte and KPMG.
The Public Company Accounting Oversight Board fined PwC’s Greek business $3mn on Tuesday and levied a $500,000 penalty on KPMG in Japan on Wednesday for failing to meet US standards in their audits of New York-listed clients.
Along with six smaller actions also announced on Wednesday, the settlements took the total amount of fines levied so far this year to $11.85mn against more than three dozen firms, eclipsing the previous record sum of $11.02mn in 2022.
The PCAOB has been stepping up enforcement activity since new leadership was appointed by the Biden administration. Its chair, Erica Williams, told the Financial Times that it would “continue to use every tool in our enforcement toolbox to make sure people know that there are consequences for putting investors at risk”.
Among the latest actions, the PCAOB found that PwC ignored red flags in its audit of Aegean Marine Petroleum Network, one of the world’s largest traders of shipping fuel, which went bust in 2018 as a result of a $300mn fraud.
Conducting its audit of Aegean’s 2016 results, PwC sent staff to verify the existence of four important customers and found that one address did not exist and two were residential buildings with no businesses located there — but it still signed off on the financial statements.
PwC and its auditors “failed to respond appropriately to that and other contradictory audit evidence, or even document the attempted site visits in the workpapers”, the PCAOB said. A PwC partner “instructed the team to cancel the remaining site visit and relied on other inadequate audit evidence to issue an audit report containing unqualified opinion”.
PwC and Aegean’s other auditor Deloitte have already paid $14.9mn each in legal settlements with investors in the US-listed company. PwC said the settlement with the PCAOB draws a line under the issue. “While PwC Greece’s work ultimately helped uncover the fraud at Aegean, we fully accept that we should have asked more questions,” a spokesperson for the firm said.
The $500,000 fine on KPMG in Japan was for failures in its system for checking audit quality, the PCAOB said. Internal reviews of audit work failed to spot poor quality work, such as not properly checking certain financial transactions, according to the settlement.
The watchdog also levied $255,000 in fines on six firms, including KPMG businesses in Argentina and Brazil and Deloitte in Luxembourg, for failing to properly flag matters of concern to their clients’ audit committees.
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