Brazil’s Superior Court of Justice orders KPMG to pay over R$10 million for endorsing Banco BVA’s misleading financial statements, which led to investor losses. This ruling highlights auditor accountability for negligence, raising questions about the financial health portrayed in audits. The decision may set a precedent for future cases involving audits and investor liabilities.
KPMG and one of its partners have been ordered by Brazil’s Superior Court of Justice to compensate an investor over R$10 million following a ruling that holds the audit firm accountable for their role in endorsing Banco BVA’s financial statements, which led to significant investment losses for third parties. This landmark case emphasizes the consequences of failing to ensure the accuracy of financial reports by audit firms.
The family-owned holding company in the agriculture sector invested R$3.5 million in Banco BVA’s CDB securities based on KPMG’s evaluations. When the Central Bank intervened in the bank’s operations, it was revealed that the financial statements had misrepresented its health. The superior court’s decision supported the São Paulo Court of Justice’s understanding of auditor liability under negligence and incompetence, as noted by Justice Cueva.
The ruling may set a precedent for holding auditors accountable in similar cases. Justice Cueva raised questions regarding the auditor’s awareness of the bank’s issues, stating, “If everyone knew or should have known about this [financial difficulty of the bank], why did the audit’s report not reflect any of this?” KPMG, a member of the “big four” group, has refrained from commenting due to confidentiality regulations.
Elisa Figueiredo, a partner at FF Advogados, highlighted that fraudulent financial statements had misled stakeholders since 2012. In conjunction with a public civil lawsuit against KPMG by the São Paulo Public Prosecutor’s Office, they initiated compensation litigation against the firm. The public civil lawsuit is still under forensic examination, which has not yet accounted for the STJ’s ruling supporting KPMG’s liability.
Despite KPMG’s claims of non-guarantees regarding the financial statements, the audit firm’s responsibilities include ensuring their accuracy. The partner involved accepted a two-year suspension from auditing activities following an agreement with the Securities and Exchange Commission of Brazil, which may indicate negligence during BVA’s audits.
In addressing KPMG’s previous sanctions, the CVM negotiated an agreement in 2015, involving a R$650,000 payment and the executive’s withdrawal from overseeing publicly traded company audits for two years. Such sanctions are aligned with the provisions outlined in Brazilian law regarding the audit industry.
Rogério Mota from the Brazilian Institute of Independent Auditors noted the rarity of investor lawsuits against auditors, citing a lack of clarity about auditor responsibilities. He stated that while auditors provide opinions based on financial statements, they cannot offer absolute certainties, emphasizing that reasonable assurance is the goal.
Filippe Vieites from WFaria Advogados pointed out that auditors can be misled by clients acting in bad faith. KPMG contended that it was not permitted to defend itself during the Central Bank’s inquiries; however, the timing of Banco BVA’s liquidation raises doubts about the sudden change in its financial health post-audit.
This translated article from Valor Econômico highlights the intricate details surrounding the ruling against KPMG and its implications for audit practices and liability in Brazil.
The ruling against KPMG underscores the critical importance of accuracy in financial auditing and imposes significant consequences for negligence. This landmark case could set a precedent for future cases involving auditor liability, as it exposes the responsibilities that auditors hold towards investors. KPMG’s situation illustrates the potential ramifications of misleading financial statements, elevating the conversation around auditor accountability in Brazil’s financial ecosystem.
Original Source: valorinternational.globo.com
