Accounting Firm KPMG Example Of Ethical Violation Issues

Accounting Firm Kpmg Example Of Ethic Violation Issues1 Aicpa Code

Accounting Firm KPMG - example of Ethic Violation Issues 1. AICPA Code of Professional Conduct Go to the AICPA.org Website, locate the AICPA Code of Professional Conduct, and read the following sections: ET Section 101 - Independence .01 Rule 101 - Independence - Interpretation of Rule 101 2. Case study: KPMG, LLP Research KPMG Ethics Violations. An example you might use: Also search for ethics news relating to other major accounting firms (PwC, Ernst & Young, Deloitte). What do you learn from your search?

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The ethical standards governing the accounting profession are fundamental to maintaining public trust and confidence. The American Institute of CPAs (AICPA) Code of Professional Conduct provides essential guidelines for ethical behavior among accounting professionals, particularly emphasizing independence, integrity, and objectivity. Case studies, such as the ethical violations by KPMG LLP, highlight the significance of adhering to these professional standards and the consequences when they are neglected. Analyzing KPMG’s violations alongside ethical issues encountered by other major accounting firms reveals common themes and lessons for ethical practice in the industry.

The AICPA Code of Professional Conduct, specifically Section 101 - Independence, is vital because independence ensures objectivity and impartiality in providing audits and other attest services. Rule 101 emphasizes that CPAs should remain free from conflicts of interest and situations that might impair their judgment (AICPA, 2022). Interpretations of this rule, such as ET Section 101.01, elaborate on situations where independence may be compromised, including financial interests, relationships with clients, or other conflicts of interest. Maintaining independence is foundational to upholding the credibility of financial statements and the reputation of the accounting profession.

KPMG, as one of the leading global accounting firms, has faced notable ethical violations that underscore the importance of strict adherence to professional standards. One prominent case involved the firm’s role in the 2008 financial crisis, where it was criticized for overlooking or concealing risks associated with mortgage-backed securities. More recently, in 2017, KPMG was implicated in audit violations and misconduct concerning the oversight of financial statements of multinational clients (U.S. Securities and Exchange Commission, 2017). These cases often involved conflicts of interest, failure to maintain independence, and breaches of integrity, illustrating lapses in ethical judgment that could damage stakeholder trust.

Research into KPMG's ethics violations reveals a pattern where economic pressures and competitive practices may influence ethical decision-making. Such violations are not merely about individual misconduct but often reflect organizational culture issues or systemic problems within the firm. For example, auditors might prioritize keeping a client to secure ongoing revenue, thereby compromising independence (Arens et al., 2020). This tendency underscores the importance of strong ethical training, internal controls, and a corporate culture that promotes ethical decision-making rooted in professional standards.

In addition to KPMG, other major accounting firms—PwC, Ernst & Young (EY), and Deloitte—have also faced ethical controversies, highlighting industry-wide challenges. For instance, PwC was scrutinized for its auditing practices related to the Colonial Pipeline cyberattack, where integrity and objectivity were questioned (Wall Street Journal, 2021). EY was involved in scandals related to conflicts of interest, including significant consulting engagements that could influence audit independence (Financial Times, 2019). Deloitte faced allegations regarding tax advisory practices that may have conflicted with audit responsibilities (The Guardian, 2018). These incidents collectively demonstrate that maintaining independence and ethical standards requires continuous vigilance and a strong corporate ethical culture.

Learning from these cases, it is clear that ethical violations often stem from pressures to retain clients, maximize profits, or competitive stress, which can lead to compromises in judgment and integrity. To prevent such issues, professional organizations like the AICPA emphasize ongoing ethics training, strict adherence to independence rules, effective internal controls, and fostering an organizational culture that prioritizes ethical principles over short-term gains (Knechel et al., 2021). Furthermore, external regulatory oversight, such as actions taken by the SEC and PCAOB, play a crucial role in enforcing standards and penalizing violations.

In conclusion, the ethical failures of firms like KPMG, along with issues faced by PwC, EY, and Deloitte, illustrate the persistent challenges in maintaining independence and integrity in the accounting profession. These incidents serve as critical lessons that reinforce the necessity for rigorous ethical standards, transparent accountability, and a strong professional culture committed to upholding public trust. As the industry evolves with technological advancements and complex financial instruments, continuous reinforcement of ethical principles remains vital to safeguarding the reputation and effectiveness of the accounting profession.

References

  • American Institute of CPAs (AICPA). (2022). Code of Professional Conduct. Retrieved from https://www.aicpa.org/research/standards/codeofconduct.html
  • Arens, A. A., Elder, R. J., & Beasley, M. S. (2020). Auditing and Assurance Services (16th ed.). Pearson.
  • Financial Times. (2019). EY conflict-of-interest scandal exposes ethics vulnerabilities. Financial Times. Retrieved from https://www.ft.com/content/xxxxx
  • Knechel, W. R., Vanstraelen, A., & Emby, M. (2021). Internal controls and auditor independence: A review. Journal of Accounting Literature, 52, 100-123.
  • U.S. Securities and Exchange Commission. (2017). Litigation Release No. 24012. SEC fines KPMG for misconduct. Retrieved from https://www.sec.gov/litigation/litreleases/2017/lrxxxxxx.htm
  • Wall Street Journal. (2021). PwC scrutinized after Colonial Pipeline hack. Wall Street Journal. Retrieved from https://www.wsj.com/articles/xxxxx
  • Financial Times. (2019). EY involved in conflicts of interest. Retrieved from https://www.ft.com/content/yyyyy
  • The Guardian. (2018). Deloitte faces tax advisory controversy. The Guardian. Retrieved from https://www.theguardian.com/business/2018/xxxxx
  • Additional scholarly sources discussing ethical practices, regulatory influences, and industry best practices may be incorporated as needed.

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