Brazil’s Superior Court of Justice found KPMG liable for over R$10 million in compensation to an agricultural holding company following investment losses linked to Banco BVA. The ruling underscores auditors’ responsibilities for accurate financial reporting, highlighting potential negligence in KPMG’s assessment of the bank’s financial health, resulting in significant repercussions for investors.
The Superior Court of Justice (STJ) in Brazil has adjudicated KPMG and an associated partner liable for significant compensation due to investment losses stemming from Banco BVA. This ruling, marking a pivotal moment, holds the audit firm responsible for endorsing the bank’s financial statements irresponsibly, which significantly impacted third-party investors.
An evaluation of the investments, together with necessary monetary adjustments and legal expenses—after deducting any reimbursements from the Credit Guarantee Fund—requires KPMG and its partner to pay over R$10 million to a family-owned agricultural holding company. The company had invested R$3.5 million based on KPMG’s assurances regarding Banco BVA’s securities, only for the Central Bank to later intervene and close the bank.
The unanimous decision from the STJ’s 3rd Panel supported the understanding of the São Paulo Court of Justice (TJSP) regarding the auditor’s accountability for poor investment decisions. While the STJ cannot re-evaluate evidence based on its Binding Precedent no. 7, Justice Villas Bôas Cueva commended the TJSP for its thorough and exemplary examination of the auditors’ negligence issues.
Justice Cueva indicated that this ruling might be unprecedented as it directly addresses investor protection in situations involving banks audited by professionals. The ruling raises concerns questioning why the audit report failed to reveal the underlying financial difficulties of Banco BVA if such difficulties were generally known.
With the STJ’s ruling being final, KPMG has issued a statement asserting that due to confidentiality regulations, it is unable to comment on cases involving past or current clients. Legal experts, including Elisa Figueiredo from FF Advogados, have pointed out long-standing concerns about the veracity of the financial statements provided by Banco BVA, particularly those influenced by KPMG personnel.
The São Paulo Public Prosecutor’s Office is concurrently pursuing a public civil lawsuit against KPMG and has initiated a compensation lawsuit on behalf of investors affected by KPMG’s actions. Prosecutor Joel Bortolon Junior confirmed that the STJ’s ruling reinforces the arguments for KPMG’s accountability concerning the damages endured by Banco BVA investors.
Despite KPMG’s assertions of non-guarantor status in lawsuits, underlining an auditor’s obligation is paramount to ensure accurate financial reporting. KPMG’s partner entered into an agreement with Brazil’s Securities and Exchange Commission, stepping back from auditing responsibilities for two years as part of a settlement that acknowledged prior negligence and oversights.
The Brazilian Institute of Independent Auditors attempted to participate in the STJ case as an interested party but was ultimately unsuccessful. Experts like Rogério Mota emphasize that while auditors can be held liable, the auditor’s responsibilities are often ambiguous, leading to rare litigation from investors against audit firms.
In light of the circumstances, legal professionals suggest that auditors can be misled if the audited entity does not act in good faith. Despite KPMG’s claim of not having the chance to present its defense during prior investigations by the Central Bank, the swift liquidation of Banco BVA shortly after the audit raises skepticism regarding the sudden deterioration of the bank’s financial standing.
The landmark ruling against KPMG in Brazil establishes critical precedents regarding auditor accountability in investment losses. The judgment reinforces the notion that external auditors hold substantial responsibility to ensure the integrity of financial statements. As the case evolves, it highlights the complexities surrounding the relationship between auditors, the entities they assess, and the investors impacted by their assessments. While KPMG maintains confidentiality over client-related cases, the implications of this ruling extend to the broader audit profession.
Original Source: valorinternational.globo.com
