The Securities and Exchange Commission announced today that KPMG has agreed to pay more than $6.2 million to settle allegations that it failed to properly audit the financial statements of oil and gas companies, resulting in investors being misinformed about the value of energy companies. The KPMG engagement partner in charge of the audit also agreed to settle the claim against him. According to an SEC order, KPMG was hired as an outside auditor for Miller Energy Resources in 2011 and issued an unqualified audit report despite the grossly overstated value of major oil and gas assets. KPMG and engagement partner John Riordan failed to properly assess the risks associated with accepting Miller Energy as a client and did not perform the audit properly, which overlooked an over-assessment of certain oil and gas interests the company had purchased in Alaska the previous year. Among other audit failures, KPMG and Riordan did not adequately consider and address facts known to them that should raise serious doubts about the company's valuation, and they failed to detect that certain fixed assets were double-counted in the company's valuation. “Audit firms must fully understand their client's industry. KPMG retains new clients and fails to understand how to value oil and gas properties, resulting in investors being misinformed that properties purchased for less than $5 million are worth half a billion dollars,” said Walter E. Jospin, Director of the SEC's Atlanta County Office. The SEC order found that KPMG and Riordan engaged in inappropriate professional behavior and caused Miller Energy to violate Section 13(a) of the Securities Exchange Act and Rules 13a-1 and 13a-13. Without admitting or denying the findings, KPMG agreed to be disclaimed and pay $4,675,680 in waiver of all audit fees received from Miller Energy plus $558,319 of interest and a $1 million penalty. KPMG also approved significant efforts designed to improve its quality control system. Riordan agreed, without acknowledging or denying the findings, to pay a $25,000 fine and be suspended from appearing or practicing before the SEC as an accountant, which includes not participating in financial reporting or auditing of public companies. The SEC order allowed Riordan to apply for reinstatement after two years. Miller Energy was charged with accounting fraud in 2015 and later settled the charges.

Required:

Analyze the Miller Energy Resource case above regarding standard professional violations committed by KPMG auditors based on SA 315!