Key Takeaways:
Canada’s largest securities regulator has charged KPMG LLP with audit misconduct, alleging the firm failed to properly value loans held by four funds managed by the collapsed private credit manager Bridging Finance Inc. for fiscal years 2019 and 2020. The Ontario Securities Commission (OSC) claims investors were harmed by paying inflated prices for fund units based on flawed audits.
The OSC is seeking administrative penalties and other remedies, accusing KPMG of making false and misleading statements about its audit quality. "KPMG’s conduct demonstrates a failure to consistently question and validate the audit evidence obtained," the regulator said in its statement of allegations.
The charges detail a failure by KPMG to scrutinize the valuation of Bridging Finance’s loans, which were the primary assets of the four funds. The OSC alleges that KPMG did not gather sufficient appropriate audit evidence and failed to exercise the required professional skepticism, particularly on illiquid assets that are difficult to value. Bridging Finance, which had about C$2 billion ($1.5 billion) in assets under management, was placed into receivership in 2021.
These allegations against one of the Big Four accounting firms could result in substantial financial penalties and significant reputational damage for KPMG. The case is also expected to intensify regulatory scrutiny across the auditing industry, especially concerning the verification of hard-to-value assets in the booming private credit market. The outcome may influence audit practices and standards for valuing illiquid investments industry-wide.
This article is for informational purposes only and does not constitute investment advice.
