backOn November 15, 2023, the PCAOB issued a settled order sanctioning KPMG AZSA LLC (“KPMG Japan”) for alleged violations of PCAOB quality control standards relating to the firm’s testing of high-risk journal entries. Specifically, the PCAOB alleged that guidance provided to firm personnel was not specific enough to provide reasonable assurance that its engagement teams would adequately test high-risk journal entries, and that the firm’s journal entry testing work papers often reflected only cursory analysis of high-risk journal entries and failed to incorporate substantive testing of supporting evidence, as required by PCAOB standards. The PCAOB further alleged that KPMG Japan’s system of quality control failed to include adequate monitoring procedures to obtain reasonable assurance that its system of quality control concerning journal entry testing was effective, as evidenced by the fact that the firm’s internal review program evaluated an audit with deficient journal entry testing but did not issue a formal finding or otherwise escalate the issue within the firm.
KPMG Japan agreed to settle the matter without admitting or denying the PCAOB’s allegations. The PCAOB censured the firm, imposed a civil monetary penalty of $500,000, required the firm to review and evaluate its policies and procedures concerning journal entry testing, submit a report summarizing such review, and implement any changes identified as warranted because of the review.
The PCAOB’s press release is available here, and the settled order is available here.