On August the 15th of 2017, the Securities and Exchange Commission announced that KPMG had agreed to pay more than $6.2 million to settle claims that it failed to properly audit an oil and gas company’s financial statements. In return, the SEC concludes that investors were misinformed about the energy company’s value. The company’s engagement partner in charge of the audit has also agreed to settle charges against him.

The SEC’s order details the alleged failures on behalf of KPMG. In 2011, Miller Energy Resources hired KPMG as an outside auditor. KPMG is accused of subsequently issuing an audit report with grossly overstated values for certain oil and gas assets. The SEC alleges that KPMG and engagement partner, John Riordan, failed to adequately assess the risks related to taking on Miller Energy as a client. In return, KPMG did not properly staff the audit and this led to the audit overlooking the overvaluation of oil and gas interests that Miller Energy purchased in Alaska the previous year.

The SEC accuses KPMG and Riordan of failing to consider and address known facts that would have raised serious doubts regarding the company’s valuation. It is also believed that KPMG and Riordan failed to identify certain fixed assets that were counted twice in the company’s valuation.

The SEC’s order concludes that KPMG and Riordan engaged in improper professional conduct, which led to Miller Energy violating Section 13(a) of the Securities Exchange Act and Rules 13a-1 and 13a-13. KPMG has agreed to pay $4,675,680 in disgorgement, $558,319 in interest, and a $1 million penalty. It will also be required to take measures to improve its quality control systems. KPMG was not required to admit or deny the findings.

Riordan had been required to pay a $25,000 penalty. He will also be suspended from appearing or practicing before the SEC as an accountant. Riordan can apply for reinstatement in two years. Again, Riordan did not admit or deny the findings. In 2015, Miller Energy was charged with accounting fraud. The oil and gas company settled the charges at a later date.

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