KPMG had highest audit deficiencies among Big Four firms last year

The world of accounting is continuously evolving, marked by regulatory scrutiny and the ever-growing demand for transparency. Recently, KPMG LLP, one of the leading firms in this sector, has come under the spotlight due to significant deficiencies found during inspections conducted by Canada’s audit regulator. This article delves into the implications of these findings and what they mean for KPMG and the broader accounting industry.

KPMG's audit deficiencies revealed

In a recent report, the Canadian Public Accountability Board (CPAB) noted that KPMG exhibited deficiencies in 20 percent of the audit files it reviewed in 2025. This statistic places KPMG at the forefront of audit issues compared to its peers in the Big Four accounting firms. The CPAB's findings highlight a critical moment for KPMG as it faces increased scrutiny from both regulators and clients alike.

The CPAB’s inspection results represent a significant shift in how audit performance is disclosed, aligning Canadian practices more closely with those in the United States, where individual firms have been named in audit reports for some time. This change aims to promote accountability among accounting firms and encourage a culture of quality and compliance.

Understanding the audit oversight process

The CPAB oversees all public accounting firms that audit publicly traded companies in Canada. Each firm must register with the CPAB, and those auditing 100 or more public companies are subjected to annual reviews. The inspection process entails a thorough examination of client audit files to ensure compliance with established professional standards.

During these inspections, the CPAB categorizes findings into significant and minor infractions. Significant findings indicate areas where a firm has notably failed to adhere to auditing standards, which could impact the reliability of a company's financial statements. The CPAB assesses these findings to determine where firms need to enhance their auditing practices.

KPMG's performance in comparison to peers

Among the Big Four firms—KPMG, Deloitte, Ernst & Young, and PricewaterhouseCoopers—KPMG's results from the CPAB report were particularly concerning. The firm recorded six significant infractions across five of the 24 audits reviewed. Notably, the issues identified included:

• Three infractions related to revenue and associated accounts.
• One issue concerning business combinations.
• One finding related to inventory.
• One miscellaneous finding.

This contrasts sharply with the performance of other firms. For instance, Ernst & Young and PricewaterhouseCoopers each had two significant findings out of 11 and 13 audits, respectively, while Deloitte reported just one finding in 13 audits. This disparity raises questions about KPMG's internal processes and their commitment to maintaining high audit quality.

Response from KPMG and industry peers

In response to the CPAB's findings, KPMG has publicly acknowledged the issues and expressed its commitment to addressing them. Roula Meditskos, a spokesperson for KPMG Canada, emphasized the importance of these findings in identifying areas for improvement. She stated, “Consistently executing high-quality audits is our top priority,” reinforcing the firm's dedication to enhancing its quality management systems.

KPMG's CEO, Benjie Thomas, also communicated with the CPAB, stating that the firm is actively reviewing the significant findings and implementing measures to align with the applicable auditing standards. This includes substantial investments aimed at fostering sustainable quality improvements in their audit practices.

Other firms within the Big Four have similarly committed to addressing their audit deficiencies. For example, PwC has updated its training and policies in response to CPAB's findings, while EY has enhanced its audit processes by implementing AI-powered tools to streamline operations.

The broader implications for the accounting industry

The CPAB's decision to publish individual audit findings marks a pivotal moment in the accounting sector, potentially reshaping how firms operate. By making these results public, the CPAB aims to foster a competitive environment where quality and transparency are paramount.

This new level of scrutiny could lead to several industry-wide changes, including:

• Increased focus on audit quality and compliance among firms.
• Enhanced training and development programs for audit staff.
• Greater investments in technology to improve audit processes.
• Stricter enforcement actions for firms failing to meet standards.

As firms adapt to these changes, the emphasis on maintaining high-quality audits will likely become a defining characteristic of successful practices in the future.

Ongoing regulatory and enforcement strategies

The CPAB operates under a graduated enforcement framework, meaning that ongoing or serious findings could lead to significant repercussions for firms. While enforcement actions remain non-public until the conclusion of an appeal period, the CPAB has indicated that it will disclose a summary of enforcement actions in its annual report, scheduled for release at the end of March.

This transparency is designed to hold firms accountable and encourage them to prioritize compliance and quality assurance in their audit processes. Continued regulatory oversight will be vital in ensuring that the lessons learned from these inspections translate into tangible improvements within the industry.

Conclusion and the path forward

The findings from the CPAB inspections highlight crucial areas for improvement within KPMG and the broader accounting landscape. As the industry navigates these challenges, firms must remain vigilant in their commitment to quality and transparency. The ongoing regulatory scrutiny will likely serve as a catalyst for positive change, ultimately benefiting clients, investors, and the integrity of the financial markets.