Question
C. The beginning of the revelations about the fraud and KPMG's low-quality audit began to become know on July 28, 2011.On that date, The Street
C. The beginning of the revelations about the fraud and KPMG's low-quality audit began to become know on July 28, 2011.On that date, The Street Sweeper, a financial blog dedicated to exposing corporate fraud, published the results of its assessment of the validity of the financial statements for Miller.They challenged the valuation of the Alaska Assets, providing numerous links to publish sources that called that valuation into question.Riordan and KPMG learned of The Street Sweeper report on the date it became public, and reached out to KPMG's national office Department of Professional Practice (DPP).The SEC's AAER reports that DPP and the engagement team did not react with sufficient diligence in responding to The Street Sweeper's allegations, and discounted the information contained in the allegations, and then proceeded to issue an unqualified audit opinion on Miller's FYE 2011 financial statements.In addition to all these red flags, on July 29, 2011, Miller management filed its 10-K before KPMG had completed the audit and issued its independent accountants' report, or its consent to the use of their report filed.On August 29, 2011, KPMG issued an unqualified audit opinion.
Why does it seem like KPMG professionals convinced themselves that there were not problems with the audit?In answering this question consider professional skepticism and the role of the psychological phenomenon known as escalation of commitment, which "refers to a human behavior pattern in which an individual or group - when faced with increasingly negative outcomes from some decision, action, or investment - continues the same behavior rather than alter course."
D. Evaluate the pattern of audit fees that KPMG earned on the Miller audits.Discuss how auditor independence may be at issue in this case.
E. What is the relative fairness of the fines levied on Miller, KPMG, and Riordan, respectively.
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