KPMG has become the latest major audit firm to take heat from the Public Company Accounting Oversight Board over a handful of audit missteps.

In its annual inspection, the PCAOB visited KPMG’s national office and 24 of its 90 U.S. field offices to pore over audit files looking for errors. Inspectors picked apart 10 audits in particular where they found problems that suggest the firm “had not obtained sufficient competent evidential matter to support its opinion on the issuer’s financial statements.”

The deficiencies included not only inadequate audit procedures (in the eyes of PCAOB inspectors, at least) but also undiscovered accounting mistakes. KPMG spokesman Dan Ginsburg says the firm conducted a thorough review of issues raised by inspectors and performed some additional procedures and documentation where warranted. None of those matters resulted in a restatement or having to reissue any of our reports, he notes.

The firm also stressed that not every point raised by inspectors led to new work. “In [some] cases, we determined that no remediation of any type was necessary,” KPMG wrote to the PCAOB in response to the inspection.

In its letter, KPMG acknowledges the inspection process and its role in improving audit quality, but the firm also defends its own staff. “We would also like to recognize the people of KPMG and the effort they expend to perform high-quality audits in an increasingly challenging environment,” noted KPMG.

The PCAOB’s comments focused on some touchy accounting and auditing topics, such as allowances for loan losses, questionable revenue recognition tactics, write-downs associated with long-lived assets, goodwill in a business combination, and others. In some cases, inspectors say the firm failed to test claims, data, or assumptions, while in others inspectors say auditors failed to document their conclusions adequately.

“Just as auditors use their judgment to determine the auditing procedures to be performed, the PCAOB inspection staff members’ observations are based upon their assessment of audit risk and financial statement materiality,” KPMG wrote. “We may have differing views as to the nature and extent of necessary auditing procedures, resulting conclusions, or required documentation in specific circumstances.”

The report covers audits of 2006 financial statements, studied by PCAOB inspectors from April 2007 through January 2008. It is the last report for that period to be published on a Big 4 or tier-two audit firm.

Related Resource: Additional PCAOB Inspection Reports Related Coverage: Auditor Changes Increase the Heat (Feb. 12, 2008)