Auditing

Oversight Board Bars KPMG Ex-Auditor

The case is the PCAOB's fourth enforcement action this year.
Sarah JohnsonNovember 16, 2007

The Public Company Accounting Oversight Board has barred a former KPMG auditor from working at a public accounting firm for a year.

The PCAOB accused Susan Birkert, who worked at the Big Four firm from 2002 to 2006, of violating its independence rules when she bought $5,000 worth of a KPMG client’s stock. Birkert settled the PCAOB’s charges without denying or agreeing to the auditor overseer’s findings. She did not respond to CFO.com’s request for comment.

On Thursday the PCAOB released its disciplinary order against Birkert as well as a separate, unrelated order against a Portland, Oregon-based accounting firm. They mark the 3rd and 4th enforcement actions to come out of the organization this year and the 11th since the board was founded in 2002.

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In Birkert’s case, an anonymous tip prompted KPMG to conduct an internal investigation into her behavior while she worked on the audit team for Comtech Telecommunications Corp. and was involved in its fiscal year 2004, 2005, and 2006 year-end audits as well as its quarterly reviews. According to the PCAOB, the internal probe uncovered that Birkert had given a former coworker a check for $5,000 to buy Comtech stock. The oversight board alleged she knew that by owning an audit client’s stock, she would be violating auditor-independence rules.

Under the PCAOB rules, auditors’ independence is impaired if they “committed to acquire any direct…financial interest” in a client during an engagement period.

According to KPMG spokesman George Ledwith, the firm learned of Birkert’s discussion to possibly purchase stock through its internal compliance processes. In turn, the firm informed Comtech and the Securities and Exchange Commission, and terminated Birkert. Comtech did not return CFO.com’s request for comment.

As for the Oregon firm, owner Timothy Steers was barred from being associated with a public accounting firm for two years, and the registration of his firm, also called Timothy Steers, was revoked. He settled with the PCAOB without admitting or denying the findings that he did not follow the board’s standards in the audits of two clients in 2004. He did not return a CFO.com phone call requesting comment.

The PCAOB faulted Steers and his firm for not adequately questioning managers’ assertions at Henderson, Nevada-based CyberAds Inc. According to the regulator, Steers should have conducted more audit procedures to make sure CyberAds had the rights to a $10.7 million asset, but he did not adequately evaluate the asset’s value, the board charged. The company later restated its financials to remove the asset.

In another matter, the PCAOB accused Steers of not following proper procedures to evaluate disclosures provided by another Nevada company, Nova. The audit firm should have done more work to evaluate whether a reclassified liability complied with GAAP, the board charged. Further, the firm allegedly didn’t notice inconsistencies in work papers and financials regarding convertible notes payable to a third party.