PCAOB Fines KPMG Netherlands $25 Million Over Exam Answer Sharing

The Dutch Authority for the Financial Markets, which worked with the PCAOB on the case, said KPMG Netherlands is now under enhanced supervision by the AFM.

What the PCAOB found

The order finds that from at least October 2017 until December 2022, the firm violated PCAOB rules and quality control standards on integrity and personnel management by failing to put appropriate policies and procedures in place for administering and overseeing internal training tests, including tests designed to help audit professionals maintain their professional certifications. Those failures meant the firm did not identify that hundreds of its professionals were involved in improper answer sharing, either by providing access to test questions or answers or by receiving such access without reporting it. The courses covered topics including US auditing standards, US GAAP, and professional ethics and independence.

The PCAOB found that the answer sharing reached a number of partners and some of the firm's most senior leaders, including its then Head of Assurance, and described an inappropriate tone at the top. Although the firm had known since June 2020 of answer sharing at a separate KPMG service centre in India that supports its audit work, it took virtually no steps to investigate its own personnel until a whistleblower report in July 2022. From March 2022 to June 2023, the firm made, and failed to correct, multiple inaccurate representations to the PCAOB during the investigation.

Remedial requirements

Within 90 days of the order, the firm must establish, revise or supplement policies and procedures, including monitoring procedures, to provide reasonable assurance that personnel complete internal training and related tests with integrity. The AFM said its supervisory programme will include remediation, a root cause analysis, procedures to prevent and detect improper answer sharing, and further changes to the firm's culture.

Why it matters

For audit firms, the case shows that cheating on internal training is treated as a quality control failure rather than a human resources matter, and that inaccurate statements to an inspector can significantly aggravate the outcome. Audit committees of companies audited by network firms may wish to ask how their auditors monitor training integrity and respond to regulatory inquiries.

Sources

• PCAOB: Order in the Matter of KPMG Accountants N.V., Release No. 105-2024-022
• AFM: PCAOB imposes administrative fine of $25 mln on KPMG Accountants Nederland