This failure was the responsibility of KPMG, one of the Big Four accounting
firms. As a result, KPMG had to pay a settlement of $6.2 million. This was due
to their failure to properly audit the financial statements of Miller Energy
Resources. According to the SEC, Miller Energy Resources grossly overstated
some oil and gas assets by $400 million in prior years, and that fraud was
completely undetected by KPMG. This allowed for the company to have
major growth in the market and appear to be performing much better than their
competitors. (Cohn, 2017) This type of fraud, of course, hurts investors
greatly, which is why the SEC imposes heavy fines for fraud and negligence.
KPMG accepted the valuation of the asset (land) without conducting further
steps to verify its existence and accuracy.
To avoid this audit failure, KPMG could have easily conducted research into
the company and the industry before accepting them as a client. The audit team
clearly did not have an understanding of how oil and gas land accounting
works. Further, they did not do their due diligence as auditors and verify the
existence of assets. It is interesting to me to see land valued so highly, at such a
great year over year increase, and the auditing team did not think to look into
how much land the company actually owned. Had they did, they would have
detected the vast overstatement and fraud. Their failure to do so made them
complicit, which is why they were ordered by the SEC to pay a large fine.
KPMG also had to agree to improve their quality control system. Surely,
KPMG is now more careful about which clients they accept, as well as
verifying vast claimed acreages of land and other assets as part of future audits.
My opinion on the current climate of auditing is that auditors must be more
vigilant than ever. There are countless ways to commit fraud, given all of the
advanced systems and technology that we have today. Further, given the
current economic client, I am sure fraud risk is at a high for many companies.
At the company I work for, fraud from economical pressure has been a risk
that has been raised into the top tier. While advances in software are great for
auditing, it is important to note that others can learn about our software and
how to manipulate them. I have been an auditor for about a year now, so I don't
have that much experience under my belt yet, but I have learned that, in this
environment, it is best to keep your head on a swivel.
References
Cohn, M. (August 15, 2017). KPMG to pay $6.2M to settle audit failure
charges. Accounting Today. Retrieved from https://bi-gale-
