Audit, Assurance and Compliance: KPMG Case Study Analysis Report

This report presents a case study analysis of KPMG's audit practices, focusing on a lawsuit filed against the firm related to the Lernout & Hauspie case. The report examines key events, factual issues, and allegations of professional misconduct, including violations of Generally Accepted Auditing Standards (GAAS) and other regulations. It delves into the culpability of involved parties, the damages imposed, and the penalties considered. The analysis highlights failures in detecting financial misstatements and fraudulent activities, leading to significant financial losses for shareholders. The report concludes by emphasizing KPMG's professional duties and the consequences of failing to provide accurate financial information, including the settlement of $115 million to Lernout & Hauspie shareholders. The study underscores the importance of adhering to auditing standards to mitigate the risk of litigation and maintain professional integrity.

Audit report
A case study on KPMG

INTRODUCTION
KPMG is one of the leading firm providing the professional services of auditing and is one
of the Bid four auditors along with Deloitte, Ernst and Young and Pricewaterhuose Cooper.
 For the present report the evaluation of KPMG is carried out in context of professional
negligence for a period after 2000.
 Under many circumstances the organisation was found to under misconduct on its
professional duties.
 Lawsuit on KPMG filed by Lernout & Hauspie (2004) is analysed in depth to find out
the facts, evidence, ruling and decision of the case

Case details and discussions
Key events and factual issues behind the case:
 Lernout & Hauspie Speech product a Belgian company was established in 1987 .
 KPMG has responsibility to carry out the auditing work to prepare and present the
actual financial position.
 Law suit KPMG was imposed with allegation of misconduct.

CONTD..
The culpability and responsibilities of the parties to case, damage imposition and
considered penalties:-
 Speech software development company Lernout & Hauspie issued inflated shares to
public.
 Subsequently company goes into bankruptcy leading shareholder under loss.
 Lernout & Hauspie was also culpable for its bankruptcy.
 KPMG failed in carrying out its professional duty and detecting the misstatement and
fraud of its client.

CONTD..
Investigation of the relevant issues in the Auditing and Accounting raised in the case:
 GASS( Generally accepted auditing standards) violation
GAAS is a legally approved and adopted by the American institute of certified public
Accountants which defines the conduct of the auditors in performing and reporting of the
audit engagement.
 GAPP, SEC and other regulations violations:
The SEC requires that publicly-traded companies present their financial statements in
accordance with GAAP. 17 C.F.R. § 210.4-01(a)(1).
GAAP are those principles recognized by the accounting profession as the conventions,
rules and necessary procedure.

CONTD..
Probable and mistakes on the part of defendant: KPMG
 There was a serious breach of the duty and responsibilities imposed on a audit firms by
the GAAS.
 KPMG discovered misstatement but reluctantly refused the possibility of any
fraudulent activity.
 Cash restriction was imposed by transferring a significant amount of cash to Korean
bank remained undetected.

CONTD..
 Judgement and awarding of damages:
 In this case the audit firm KPMG was imposed with a law suit over non detection of the
fraudulent activities by its client leading to cause loss to innocent people.
 The litigation was filled against KPMG but after a period of 4 years from 2001-2004.
 KPMG had settled this case afters paying of the settlement amount in form on damage
compensation to the shareholders of the company Lernout & Hauspie a amount of $115
million.

Conclusion
 a audit firm KPMG owed significant level of professional duties towards its client to
provide accurate and correct information.
 With investigation of facts and details its law suit with Lernout & hauspie it has been
detected that the company KPMG had failed in presenting the accurate financial
position.
 KPMG agreed to pay$115 millions to the shareholders of Lernout & Hauspie.
 KPMG have failed in abidance with its professional duties in several cases where it
have failed to recognised the true and accurate financial position of its client.