Top 5 takeaways from ASIC hearing into KPMG

The corporate regulator appeared before the Parliamentary Joint Committee on Corporations and Financial Services for the Oversight of ASIC, the Takeovers Panel, and the Corporations Legislation where it provided insight into its investigation and surveillance activities on alleged misconduct at KPMG, as well as EY, Deloitte, and PwC.

Accounting Times provides a summary of the major issues discussed at the hearing.

Over 550 internal complaints at the big four firms

ASIC reported that it is reviewing 551 internal complaints received by the big four accounting firms relating to alleged misconduct since commencing surveillance from 1 July 2023.

ASIC obtained these complaints as part of its ongoing surveillance of audit conduct complaints, including potential whistleblower complaints, received by each of the big four audit firms, ASIC chair Sarah Court told the committee.

Court elaborated that ASIC asked the accounting firms to provide information on whether they have received complaints relating to misconduct by registered company auditors, such as the “misuse or sharing of confidential information”.

ASIC used its compulsory information gathering powers to obtain that material, she added.

When asked by the committee why their surveillance commenced in the “arbitrary” July 2023 period, ASIC executive director, enforcement and compliance, Chris Savundra, said he suspected it was because it was a reasonable period to begin, adding that the information gathered could lead to formal investigations.

“In no way are we limited in going further back,” Savundra said.

“In one instance, in relation to one complaint, we’ve now asked for information going back to November 2022 because it was a subsequent complaint that referred to an earlier one. We will follow the trail of where those complaints lead us.”

ASIC was asked about how it would proceed with the complaints it has received, to which Court responded that it is compiling the information for the purposes of a surveillance report to outline the findings.

It will also scrutinise individual complaints to ascertain if ASIC has to undertake further investigations or enforcement action on any particular issue.

“At a very early stage, I don't want to suggest that there are 550 serious whistleblower issues. We don't know, and there's a lot of work for us clearly to be looking through those complaints, getting more information as we need it,” Court said.

Court also told the committee that ASIC has directly received 139 reports of alleged misconduct relating to the big four accounting firms since 1 July 2023, and this may include services outside of audit functions.

KPMG still claiming privilege over documents

Court told the parliamentary committee KPMG is still withholding documents despite the corporate regulator seeking them by issuing notices.

While acknowledging that the scandal-ridden accounting firm has been more forthcoming with the documents since John Sams was appointed as the new CEO of KPMG Australia, Court said the firm is still maintaining a claim for legal professional privilege (LPP) for some documents.

“We haven’t pressed for the production of that last category of documents but we’ll continue to consider our position in relation to those,” she said.

Greens Senator Barbara Pocock pressed ASIC on this issue, stating that the sentiment among the Australian public in relation to alleged misconduct at KPMG is that it is time for “coming clean thoroughly”.

“In what world do KPMG leaders think they have social licence to withhold documentation, given the mayhem that has flowed from their protective culture? What do they say to you?” Pocock asked ASIC.

Savundra responded that KPMG is not required under the law to produce those documents to the corporate regulator.

“They've asserted their right to LPP under the law, and that's a matter for KPMG,” he said.

“I think it's difficult for us to ask for documents which, under the law, we're not entitled to receive. But we have said they can volunteer information to us that we otherwise can't help under the law, and they've said that they will assist us by being as transparent as possible.

“I think what we have done both through the surveillance and our interaction with them in relation to the formal investigations, is made very clear our expectation around transparency, and we have been given commitments from the CEO down that they will be transparent with us.”

Court said KPMG has produced another suite of documents under a voluntary disclosure agreement, which is where a party who wishes to maintain LPP may nevertheless agree to voluntarily disclose the material to ASIC but on a confidential basis.

This means that while ASIC can view the documents, they cannot use the contents for any public enforcement action.

KPMG could be back in hot seat if promises aren’t kept

Pocock expressed her displeasure over KPMG continuing to withhold documents despite assertions by the new leadership team – including Sams and chairman Michael Ebeid – that the firm has “turned over a new leaf… there is new culture”.

She said that KPMG could be asked to return to face another parliamentary hearing after their appearance in August to explain their actions if they do not demonstrate that a cultural shift has taken place.

“My expectation is that the performance of a new leadership requires delivery of outcomes, and this is a critical question. There is a clear message, certainly from me, that they'll be back talking to us again if they don't deliver what they say they are doing culturally,” Pocock declared.

The parliamentary joint committee decided to release six legal documents from KPMG produced by Ashurst and Allens last month despite KPMG requesting LPP, citing “compelling public interest” as its reason.

The documents state that the firm was not considered to have breached its code of conduct and values, and the firm was advised it would not be required to take any further action on whistleblower allegations.

Scrutiny into KPMG-related corporate entities

ASIC said it is expanding its stream of work to scrutinise whether there were any contraventions of directors’ duties in KPMG-related corporate entities.

Court highlighted that it has not yet become a formal investigation adding she could not provide further information.

While noting that ASIC does not have jurisdiction over partnership arrangements, Court said the regulator is examining conduct at the corporate entities as the obligations stipulated in the Corporations Act would apply to them.

ASIC is also undertaking another stream of investigation in relation to whether certain statements provided in KPMG's audit transparency reports were "false and misleading," Court said.

KPMG's transparency report for FY25 said there were "no internal complaints regarding audit quality", and no external complaints received via direct correspondence via its global whistleblower hotline. The hotline is one of many channels for reporting concerns about potentially illegal, unethical, or improper conduct, the firm said.

All individual auditors, audit firms, and authorised audit companies must publish an annual transparency report on their website if they have conducted audits of listed companies, listed registered schemes, and authorised deposit-taking institutions (ADI) in the past reporting year (12 months commencing on 1 July).

ASIC powers override any KPMG NDA, says Court

As the hearing drew to a close, Court asserted that any partners or staff who have departed or were made redundant at KPMG and have signed any non-disclosure agreements (NDA) should not feel that they cannot speak to ASIC as the regulator’s statutory powers override any NDAs or deeds of release.

The assertion was in response to parliamentary committee chair and Labor Senator Deborah O’Neill noting that there have been several redundancies of KPMG partners and staff, which could trigger a range of responses.

“I wonder if the people are being asked to separate and sign a deed of release, which might restrict them and frustrate their capacity to interact with you, which is the methodology we saw employed with the whistleblower,” O’Neill said.

“Have you made any representations to KPMG that they should not be interfering with the departure of any partner or other staff member to make it impossible for them to interact with ASIC?”

Court responded that ASIC has not specifically raised this, and she underscored that NDAs would make no difference to ASIC’s inquiries.

“We have compulsory notices. They have an obligation to speak to us. So, the fact of a non-disclosure agreement or otherwise, we would not see that as frustrating our inquiries,” Court said.

Musing that she would be unsurprised if KPMG applied “heavy-handed tactics” around selecting who to dismiss depending on how much information they have around any alleged misconduct at the firm, O’Neill asked ASIC to have open conversations with former partners and staff.

Savundra responded: “We would encourage anyone that wants to come forward to talk to us, and if they need us to compel them in order to achieve protection, we can do that.”

However, he noted that some former staff at any corporation – not specifically at KPMG – could be reluctant to speak with ASIC if they have signed an agreement with deferred remuneration attached to it as this could jeopardise those financial benefits.

This is particularly the case with partners and senior staff.