KPMG Bermuda yesterday stood by audit work it carried out for Island re/insurer Alterra Capital Holdings Ltd in 2008 after Bloomberg News revealed regulatory inspectors reported that the accountancy firm had failed to do enough to check the accuracy of some asset valuations.Bloomberg columnist Jonathan Weil’s column yesterday stated that inspectors from the US Public Company Accounting Oversight Board (PCOAB) found deficiencies in an audit carried out by KPMG Bermuda and in particular, “the failure to perform sufficient procedures to test the estimated fair value of certain available-for-sale securities”.The PCOAB’s policy is not to name the client in such cases, but Mr Weil was able to identify the company as Alterra, because the report noted that KPMG Bermuda had one US-listed audit client. Through knowing that, the columnist was able to find out it was Alterra through further searches of publicly available documents.In a regulatory filing yesterday, Alterra confirmed that it was the company referred to in the PCOAB report.Mr Weil wrote: “It’s when you look at Alterra’s financial statements that the magnitude of KPMG Bermuda’s screw-up becomes apparent. Available-for-sale securities are the single biggest line item on Alterra’s balance sheet. They represented almost half of the company’s $7.3 billion of total assets as of December 31, 2008, and a little more than half of its $9.9 billion of total assets at the end of last year.”The widely circulated column also accused the PCOAB of “protecting the dirty little secrets of the accounting firms and their corporate audit clients” by not naming clients in such reports.KPMG Bermuda and Alterra both issued statements yesterday in response to the commentary.Both made the point that the criticism levelled at KPMG Bermuda was also made in many other PCOAB inspection reports on other audit firms. Evidence on the PCOAB website supports this view.For example, among the inspectors’ reports was one featuring PricewaterhouseCoopers, dated August 2010, in which the inspectors found that the audit firm “failed to perform adequate audit measures to evaluate the fair values of various types of the issuers investment securities and derivatives”.Another report, on Ernst & Young, dated May 2009, found “no evidence...that the Firm had sufficiently evaluated whether certain of the assumptions underlying the issuer’s valuation of the securities were reasonable”.A third report, dated May 2008, found that Deloitte “failed to perform sufficient procedures to assess the valuation of certain of the issuer’s privately issued mortgage-backed security holdings”.The auditors’ clients were not identifiable in any of these reports, unlike the KPMG Bermuda report, which sparked yesterday’s Bloomberg story.The difference of opinion between the regulators and the audit firms on procedure at this time was apparently focused on auditors’ use of information from entities like Reuters and Bloomberg in verifying asset valuations, without further work to evaluate the third parties’ procedures to value assets. Numerous critical reports during 2008 and 2009 made the PCOAB’s point and audit firms have adjusted their procedures to comply.KPMG Bermuda said yesterday that it was “extremely disappointed that the wording in the PCOAB’s 2009 inspection report” had led to the identification of its client Alterra.“As we have represented to our client and the PCOAB, we believe that we have followed the generally accepted auditing standards in carrying out the 2008 audit of Alterra and, specifically, in auditing the estimated fair value of the company’s investment portfolio,” KPMG Bermuda managing partner Neil Patterson said.“In our view, it is clear from similar comments made on other firms’ inspection reports issued by the PCOAB, relating to audits performed in 2008 and 2009, that the PCOAB had a different interpretation of the audit procedures necessary to audit fair value estimates to the audit firms that conduct public company audits.“We are mindful of our responsibility to the capital markets and we are committed to delivering high quality audits for all of our clients. We stand behind the work that was performed and the unqualified opinions that we have issued for our client for 2008, 2009 and 2010.”In a regulatory filing yesterday, Alterra, which in 2008 existed as Max Capital Group Ltd, noted that the PCOAB report had not questioned the appropriateness of values attached to assets by Alterra, but rather had questioned whether KPMG Bermuda’s audit procedures to verify them were sufficient.The PCOAB had recorded similar findings with other accounting firms at the time and that “since 2008, we understand the firms have issued additional guidance to clarify the work to be completed on the audit of fair value investments”.Alterra’s statement added: “KPMG Bermuda confirmed in its response to the PCOAB report that ‘none of the matters identified by the PCOAB required the reissuance of any of our previously issued reports’. Alterra reaffirms its belief that the asset values ascribed to its available-for-sale securities in 2008 and subsequent periods remain appropriate.”Alterra’s shares rose 31 cents, or 1.4 percent, to close on $22.26 in New York Stock Exchange trading yesterday.