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    A Synthesis Essay of Articles Relating Inherent Ethical Challenges

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    Faith Estrada
    KPMG, one of the Big Four accounting firms, engaged in an improper scheme where it received confidential inspection information from the PCAOB ahead of audits. This allowed KPMG to cheat on its internal firm inspections. An investigation also found KPMG auditors were cheating on internal training exams by sharing answers. Some auditors, including partners, lowered the required passing scores on exams to pass while answering less than 25% of questions correctly. The SEC fined KPMG $50 million and required additional compliance measures in response to these ethical failures.

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    A Synthesis Essay of Articles Relating Inherent Ethical Challenges

    Uploaded by

    Faith Estrada
    71 views4 pages
    KPMG, one of the Big Four accounting firms, engaged in an improper scheme where it received confidential inspection information from the PCAOB ahead of audits. This allowed KPMG to cheat on its internal firm inspections. An investigation also found KPMG auditors were cheating on internal training exams by sharing answers. Some auditors, including partners, lowered the required passing scores on exams to pass while answering less than 25% of questions correctly. The SEC fined KPMG $50 million and required additional compliance measures in response to these ethical failures.

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    KPMG, one of the Big Four accounting firms, engaged in an improper scheme where it received confidential inspection information from the PCAOB ahead of audits. This allowed KPMG to cheat on its internal firm inspections. An investigation also found KPMG auditors were cheating on internal training exams by sharing answers. Some auditors, including partners, lowered the required passing scores on exams to pass while answering less than 25% of questions correctly. The SEC fined KPMG $50 million and required additional compliance measures in response to these ethical failures.

    Copyright:

    © All Rights Reserved
    Download as DOCX, PDF, TXT or read online from Scribd
    Download as docx, pdf, or txt
    71 views4 pages

    A Synthesis Essay of Articles Relating Inherent Ethical Challenges

    Uploaded by

    Faith Estrada
    KPMG, one of the Big Four accounting firms, engaged in an improper scheme where it received confidential inspection information from the PCAOB ahead of audits. This allowed KPMG to cheat on its internal firm inspections. An investigation also found KPMG auditors were cheating on internal training exams by sharing answers. Some auditors, including partners, lowered the required passing scores on exams to pass while answering less than 25% of questions correctly. The SEC fined KPMG $50 million and required additional compliance measures in response to these ethical failures.

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    © All Rights Reserved
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    Download as docx, pdf, or txt
    of 4

    1

    Faith L. Estrada October 17, 2019

    Bachelor of Science in Accountancy, 5th year Acctg.160 Synthesis

    A Synthesis Essay of Articles Relating Inherent Ethical Challenges

    Ethical behavior means to behave according to the moral standards set by the
    society which we live in. Ethical behavior in business practice has been developed
    continuously. It has been looked as important aspect of the business success, with
    that it has been a cause of concern nowadays. It tends to be good for business and
    involves demonstrating respect for key moral principles that include honesty,
    fairness, equality, dignity, diversity and individual rights.

    No business is exempt from ethical behavior and practices. However, those


    dealing with money and sensitive personal and company information must adhere to
    strict ethics and integrity standards. Unlike other general business positions in a
    company, accountants are bound both by the rules of their organization and by the
    professional standards of the accounting industry. Accountants have ethical
    responsibilities to many different parties, both internal and external to the company.
    This is imperative to gain and retain the trust of clients, co-workers and business
    partners.

    This paper talks about the issue regarding the KPMG, a multinational
    professional services network, and one of the Big Four accounting organizations.
    2

    KPMG was formed in 1987 with the merger of Peat Marwick International
    (PMI) and Klynveld Main Goerdeler (KMG) and their individual member firms.
    Spanning three centuries, the organization's history can be traced through the
    names of its principal founding members - whose initials form the name "KPMG",
    Klynveld. Piet Klynveld; Peat. William Barclay Peat; Marwick. James Marwick;
    Goerdeler. Dr. Reinhard Goerdele.

    The Securities and Exchange Commission extracted what is believed to be its


    largest-ever monetary penalty against an audit firm when KPMG agreed to a $50
    million settlement. What happened was that they were given an improper heads-up
    ahead of Public Company Accounting Oversight Board PCAOB inspection. The
    inspections cheating scheme involved confidential documents from the Public
    Company Accounting Oversight Board (PCAOB) that outlined its inspection plan for
    the Big Four firm. These documents were leaked by staffers to KPMG in exchange
    for jobs with the firm. This happened more than once, with the information each time
    being passed on by a PCAOB staffer who then went on to work for KPMG. A group
    of the firm's audit partners had known about this scheme, and indeed pressured the
    former staffers for additional inside information. Two of the defendants, a KPMG
    audit partner and a former PCOAB staffer, were convicted earlier this year
    on conspiracy and fraud charges. Other defendants had already pleaded guilty by
    then.
    KPMG violated Sections 4C and 21C of the federal securities laws, which
    means they did not possess “the requisite qualifications to represent others,” and
    were “lacking in character or integrity, or to have engaged in unethical or improper
    professional conduct” and “wilfully violated, or wilfully aided and abetted the violation
    of, any provision of the securities laws or the rules and regulations.”

    However, the KPMG cheating scandal was much more widespread than originally
    thought. While the primary headline concerned KPMG paying a $50 million penalty to
    settle Securities and Exchange Commission (SEC) charges that the firm used inside
    information to cheat on firm inspections, the agency also found that auditors were
    using inside information to cheat on internal training exams meant to reinforce
    professional work standards. The SEC also uncovered the internal cheating scandal.
    In addition to the regular CPE requirements that all auditors are required to
    3

    complete, the firm also requires them to do training in excess of state requirements,
    and to take an exam at its conclusion. KPMG administers this training through an
    online program. Audit professionals are given three opportunities to pass each
    examination. If one of KPMG’s audit professionals is unable to pass after two
    attempts, that person's performance management leader is notified. If audit
    professionals are unable to pass after three attempts, the consequences are more
    significant: They are required to retake the training; they are prohibited from
    conducting audit work until they pass the exam; and others at the firm may be
    notified. Audit professionals also understood that failing to pass an exam could lead
    to their compensation being reduced.

    The SEC complaint said that "on numerous occasions" KPMG audit
    professionals who had passed their training exams sent the answers to their
    colleagues to help them pass too, primarily via email or printed answers. The SEC
    noted that this practice took place at all levels of seniority, from nervous first-year
    auditors to lead engagement partners who were responsible for compliance with
    PCAOB standards in auditing their clients’ financial statements. The senior cheaters
    not only sent exam answers to other partners, but even solicited answers from and
    sent answers to their subordinates. Beyond that, the SEC said audit professionals
    were also manipulating the scores of the training exam. They did so by looking at the
    URL for the exams. Embedded in the link was an instruction to the server specifying
    the minimum score needed to pass. By changing the number in the link, they were
    able to then manipulate the score required to pass. Twenty-eight of these auditors
    did this on four or more occasions. Certain audit professionals lowered the required
    score to the point of passing exams while answering less than 25 percent of the
    questions correctly. “The sanctions will protect our markets by promoting an ethical
    culture at KPMG,” said Melissa Hodgman, associate drector of the SEC’s
    Enforcement Division. “To that end, KPMG will take additional remedial steps to
    address the misconduct and further strengthen its quality controls, all of which will be
    reviewed and assessed by an independent consultant.”
    4

    As a Certified public accountant you are held to a higher standard. You have
    to maintain ethical standards in order to involve an investor’s confidence in what
    auditors do and what certified public accountants do. That’s why certified public
    accountants have to go to school for so long and have to take so many test it is to
    prove that they have understand what their responsibilities are. The day you pass
    the CPA board exam doesn’t mean that you throw away all the knowledge you
    gained. Sometimes everything isn’t black and white, there are gray areas that you’ll
    face in your career and you have to have the courage to stand up and say this isn’t
    right and you have to report it otherwise you can ruin the firm’s image or you can ruin
    the image of the CPA.

    http://www.businessdictionary.com/definition/ethical-behavior.html

    https://www.nysscpa.org/news/publications/the-trusted-professional/article/sec-
    probe-finds-kpmg-auditors-cheating-on-training-exams-061819

    https://smallbusiness.chron.com/accounting-ethics-integrity-standards-24246.html

    https://smallbusiness.chron.com/six-guiding-principles-accountants-42457.html

    https://smallbusiness.chron.com/ethical-responsibility-accounting-58071.html

    https://smallbusiness.chron.com/ethics-accounting-profession-3738.html

    https://www.complianceweek.com/accounting-and-auditing/kpmg-fallout-cheating-
    allegations-raise-new-questions/27281.article

    https://www.marketwatch.com/story/the-kpmg-cheating-scandal-was-much-more-
    widespread-than-originally-thought-2019-06-18

    https://home.kpmg/in/en/home/about/overview/history.html

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