The US federal regulator of public accounting firms has uncovered some serious errors in audit work undertaken by one of the world's largest auditors.

Amongst the errors unearthed at KPMG by the US' Public Company Accounting Oversight Board (PCAOB) are failures to disclose letters of credit (L/Cs) properly.

Significant shortcomings

The PCAOB said it found shortcomings of significance at 19 KPMG audits it chose to inspect in 2004, leading the watchdog to conclude that the firm had not come up with enough evidence to support its opinion on those companies' financial statements.

Inspectors mounted their probe from June 2004 to October 2004, and according to a 29-page report by the PCAOB, they uncovered deficiencies including failures by KPMG to identify or adequately address errors in its clients' applications of generally accepted accounting principles (GAAP).

Non-disclosure

At least one of the errors unearthed by PCAOB pertained to the way L/Cs are disclosed in a company's accounts.

The watchdog said that in one case L/Cs were not, as they should be along with guarantees and indemnification arrangements, disclosed in the footnotes of financial statements.

Mistakes

The report says the GAAP compliance mistakes included, in some cases, errors that seemed likely to be material to the issuer's financial statements.

The PCAOB added that deficiencies included failures by KPMG to perform, or to perform sufficiently, a number of needed audit procedures.

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