Bad apples or bad orchard? KPMG Australia fails ethics test
It’s a good thing engineers didn’t have the professional standards of some of today’s accountants when the Sydney Harbour Bridge went up, or we might be driving straight into the water. Michael West examines the ethical cloud over a local arm of one of the Big Four accounting firms, with some technical advice from accountant Jeffrey Knapp.
Last month a regulatory body from the US censured and fined KPMG Australia over professional standards. The findings raise a pressing question: how widespread is this poor culture within the accounting industry?
On September 13, the Public Company Accounting Oversight Board (PCAOB) of the US made an order that (1) censures KPMG Australia; (2) fines KPMG Australia $450,000; and (3) requires KPMG Australia to undertake remedial actions.
The board’s website explains that its mission is to oversee audits of public companies in order to protect investors and further the public interest in the preparation of informative, accurate, and independent audit reports. This body investigates and, if necessary, disciplines registered public accounting firms and their associated persons for violations of specified laws, rules, or professional standards.
So why do investors in public companies need protection from KPMG Australia? What ghastly behaviour has attracted the ire of the Americans?
The board found that from at least 2016 until 2020, KPMG Australia failed to identify that more than 1100 firm personnel, including more than 250 auditors, were involved in cheating on tests for mandatory training courses that included professional independence, auditing, and accounting. The cheating involved improper answer sharing including the giving and receiving of answers relevant to the tests.
Perhaps the most disturbing aspect of the KPMG Australia cheating scandal is that it reportedly involved18 partners, including two who are no longer with the firm.
From time to time there might be one or two bad apples in a firm that act unprofessionally and humiliate themselves and embarrass the firm. But according to Jeffrey Knapp, retired accounting lecturer from UNSW, KPMG Australia’s failings of professional ethics in training courses is “not a case of one or two bad apples”.
According to its Audit Transparency Report for 2020, KPMG Australia had 1187 client service audit staff excluding partners. Apparently, around 250 of those audit staff have been cheating on mandatory professional training tests. That comes in at over 20%.
Knapp says the public will not tolerate that sort of behaviour from that many partners at a Big Four Audit firm. ‘’Reputation and trust are everything in the audit business and KPMG Australia should expect to lose some audit clients over this,’’ he said.
‘’KPMG has an Audit and Assurance Services Division. How utterly unassured an audit client of KPMG Australia over 2016-2020 must feel. There is a one in five chance that someone in the KPMG Australia personnel on their audit engagement has been cheating on their professional training tests. Stakeholders of public companies would also have the right to feel utterly unassured by a KPMG Australia audit report if 1 out 5 of their professional audit staff have been caught cheating.’’
https://www.michaelwest.com.au/bad-apples-or-bad-orchard-kpmg-australia-fails-ethics-test/