PCAOB released its 2019 inspection report for KPMG. Of the 58 audits reviewed, Part I.A deficiencies were identified in 17 of them (a deficiency rate of 29%). For 2018 and 2017, KPMG’s deficiency rate were 37% and 50% respectively. A lot of improvement here!! KPMG’s deficiency rate for 2019 appears to be slightly lower than PwC (30%).

Part I.A deficiencies

Part I.A deficiencies break-down

Deficiencies in financial statement audit include failure to perform sufficient testing related to an account, failure to obtain sufficient evidence due to overreliance on controls, and failure to evaluate data and assumptions in developing an estimate. Deficiencies in ICFR audit include nonidentification of controls related to significant account, nontesting of design and operating effectiveness of controls, and failure to test the accuracy and completeness of data used in controls. One area of improvement noticed for KPMG is that there is lower deficiencies related to accuracy and completeness of data used in the operation of controls.

Following are the audit areas with frequent Part I.A deficiencies. These are also some of the audit areas most frequently reviewed.

Improvements noted in auditing Inventory and Loans and related accounts.

Looking at the break-up by Industry sector, 13 audits were reviewed from the Financial services sector with deficiencies identified in 4 of them (31%!). Most of audits reviewed were within the $500 million to $1 billion revenue range (12 of them). 1 issuer with revenues exceeding $50 billion were reviewed with no deficiency identified in it.

Part I.B deficiencies

Following Part I.B deficiencies were identified:

Looking at KPMG actions to these deficiencies, we note, “In connection with our 2019 inspection procedures for one audit, the issuer restated its financial statements and the firm revised and reissued its report on the financial statements. In connection with our 2019 inspection procedures for this audit and for one additional audit, the issuers revised their reports on ICFR and the firm modified its opinions on the effectiveness of the issuers’ ICFR to express adverse opinions and reissued its reports. In addition, in connection with our 2019 inspection procedures for one audit, the issuer disclosed in a subsequent filing that a material weakness existed as of the date covered by the firm’s audit that was subject to our review“

So for 3 issuers, KPMG has to make revisions to its initial reports. Overall, a pretty decent year for KPMG with a continuing decline in deficiency rate.