Pcob Fraud Case

The inspection by the PCAOB revealed many deficiencies with KPMG LLP. First, the Firm assumed that the controls over revenue and inventory were the same at all of the client’s locations, but they ended up being different (5). The Firm did not use enough professional skepticism in its decision to test less locations, since they thought all of the locations would be the same. This deficiency related to the audit of internal control. If the controls were different then items were reported differently, which goes against the principle of consistency. Second, the Firm did not perform sufficient substantive procedures to test inventory and revenue. The Firm did not test enough locations to gather sufficient evidence (6). Since not enough locations

The Firm’s testing to ensure accurate useful life and disclosure were inaccurate (10). The client did not maintain information on which customers correspond to the intangibles, which raised an existence question regarding the assets. The auditors should have used confirmation with these customers to figure who was listed as an asset. The auditors should have also used more professional skepticism on making sure these customers actually existed. Auditors often rely too much on what management tells them instead of investigating it themselves. The concern with this deficiency was the effectiveness of internal

In addition, the auditors did not perform sufficient substantiate procedures for the valuation of the assets (10). Because the auditors only inquired to management about the value and only recalculated the amortization schedule, it was likely that the assets could have been materially misstated. The client could have set too high of a value on the assets and used an inappropriate useful life. The auditor should have recalculated how the client determined the value of the assets and the useful life. Finally, Pricewaterhouse Coopers responded to the PCAOB’s report in a very professional matter. They understood what the PCAOB did and how it worked to improve audit quality. Pricewaterhouse Coopers agreed with the PCAOB because they mentioned they would address each of the issues raised by the PCAOB. Additionally, they wanted stakeholders to see the steps they were taking to improve audit quality so they provided a link to their most annual audit report. Pricewaterhouse Coopers clearly appreciated what the PCAOB did and used it to improve their audit