Govt disallows KPMG from auditing public interest companies

KARACHI: The government on Monday barred a leading audit firm KPMG Pakistan from conducting audit of public interest companies for one year and imposed Rs3.5 million penalty on it for noncompliance with the standards.

After conducting an inspection of records of the audit firm, the Audit Oversight Board directed KPMG Taseer Hadi and Co. Chartered Accountants “not to allow the concerned engagement partner to conduct audit of public interest companies for one year with a requirement of competition of 100 training hours.” “The responsibility of an auditor is to conduct an audit in accordance with the international auditing standards. The findings of the inspection report point out that the auditor failed to discharge its responsibilities under the applicable auditing standards. The issues highlighted in the order are in violation of the applicable auditing standards, which limit investors’ confidence in the audited financial statements of a public interest company,” the bureau said in a statement.

A member of KPMG International got a full member firm status of Peat Marwick and is engaged in auditing of various top companies in Pakistan since founding in 1982. The decision by the Audit Oversight Bureau emerged at the time when the government is trying to get the forensic audits of five top loss-making state-run enterprises, including Pakistan Railways and Pakistan International Airlines under a slowly-moving privatisation process.

The Audit Oversight Bureau says it is the independent audit regulator in Pakistan established by the parliament in 2016 to protect public interest by overseeing the quality of the audit of financial statements of public interest companies.

There are more than 1,000 public interest companies, which include all listed companies and non-listed public sector companies. Of more than 550 audit firms, 92 are currently registered with the bureau. It also ranked 124 auditing firms for their satisfactory quality rating. Only the audit firms registered with the bureau can audit the financial statements of a public interest company.

The bureau said it had conducted direct inspection of KPMG Taseer Hadi and Co. Chartered Accountants in November and December last year. “A report on the findings was shared with the firm in February this year and the firm provided its first written response in March 2021. Thereafter, a meeting was held between the officers of AOB and the firm to discuss the findings and responses,” it said. “After a detailed analysis of the inspection report and the responses, the AOB issued a show cause notice upon the firm in April 2021.”

After the second response was received, last week it had issued an order, a copy of which is available online for the bureau’s member. Conflict over asset valuation is one of the factors that are slowing down privatisation of loss-making state-run enterprises that are fed on tax revenues.