Introduction
The company of KPMG based in the United States of America was fined approximately $6.2 million by the national SEC (Securities and Exchange Commission) for providing false calculations during the audit of MER (Miller Energy Resources). The primary issue implied the fact that the accounting firm produced a low-quality report of MER’s finances for 2011. Some statements were overestimated, whereas certain assets were almost doubled.
The impact that influenced KPMG as a result of the previously mentioned fine led to the obligation of its engagement partner, John Riordan (who is guilty of the false report), to compensate $25 thousand. The following paper will analyze the case with KPMG’s low-quality financial report and explain some tactics that could have been sound and pertinent here.
Inferences of Corporate Ethics
Indeed, John Riordan appeared to be accountable for the misstatement of MER’s profits and other financial circulations of the company (Shoaib, 2017). However, every employee of KPMG is supposed to be responsible for the management of internal controls. Moreover, every department of the company has to assure the establishment, appropriate documenting, and maintenance of internal controls in every minor operation that this firm does.
KPMG is blamed for not providing a high-quality financial report fairly because its employees should control such processes to avoid similar outcomes that make an adverse influence on their corporation as a whole (Shoaib, 2017). It appears that the work of people who made the false report was not under the strict control of their superiors. It is necessary to mention that it is inappropriate to put the blame on one’s auxiliaries when they do not achieve particular goals as managers have to teach them how to cope with similar cases.
Ethical Standards
The primary ethical considerations of KPMG’s values and leadership that had a significant influence on the situations discussed in the previous sections will be discussed in the given paragraph. To begin with, it is necessary to state that it is inappropriate, unfair, and incorrect to provide one’s customers with false information, regardless of their expectations and attitudes towards collaboration with an accounting firm (Parrino, 2016). Despite one’s financial interest and benefits, accountants are obliged to state only accurate data in their reports as even minor mistakes might lead to significant problems in a client company.
Not only will this demonstrate the unprofessionalism of an accounting firm’s workers, but also the incompetency of its leaders. Values that must be inherent in KPMG’s offices include customer satisfaction, the organization’s reputation, colleagues’ careers, and trustworthiness of the company (Parrino, 2016). The absence of several qualities listed above influenced the fine imposed on KPMG and Riordan.
Specific Conduct Violations
Specific conduct violations were committed by both KPMG and MER. Some of them will be discussed below. Although KPMG employees developed an inaccurate report, they have been provided with certain information by their partners from MER. The latter organization overestimated the value of various assets (Shoaib, 2017). Some of them were counted and recorded as if they were multiplied by two. It is necessary to mention that such an action misinformed financial investors who could lose their resources because of the discussed mistake (Shoaib, 2017). From what has been said above, it appears that KPMG did not adhere to GAAP (Generally Accepted Accounting Principles).
According to the standards of PCAOB (Public Company Accounting Oversight Board), the SEC had all the legal rights to impose a fine on the accounting firm as it miscalculated profits and product returns of MER, which made the company figure on the NYSE (New York Stock Exchange) list (Defond & Lennox, 2017).
Supportive Argument
The penalty was imposed on John Riordan. This person occupied the position of KPMG’s engagement partner. The fine is considered to be fair because he consciously neglected certain ethical and professional rules that were discussed in the previous sections of the paper. The termination of Riordan’s collaboration with the accounting firm is appropriate as he did not assess the risks accurately and did not provide competent employees up to MER’s services.
Recommendation
From what has been formulated above, it becomes obvious that KPMG failed to maintain its internal control system. In contrast, this element must be inherent in any accounting company to avoid similar cases. The ICS must eliminate any attempts of fraudulence among its employees or other partners (Parrino, 2016). Not only this makes a company more trustworthy, but it also reduces a tremendous amount of work that an auditor has to do.
Regulative organizations should make unexpected revisions and inspections to various firms they control. Also, it would be beneficial for them to investigate methodologies used in the work of accounting services to identify whether or not their employees follow all professional standards in their operations (Parrino, 2016). Finally, it would be proper for regulators to check a firm’s adherence to the Sarbanes-Oxley Act’s accounting standards.
Conclusion
To conclude, it is necessary to state that members and partners of accounting firms must realize what their responsibilities are and how they are important for other companies. Indeed, almost all accounting organizations get involved in such unfortunate situations once in a while. Nevertheless, they have to be regarded, addressed and prevented in the future.
References
Defond, M. L., & Lennox, C. S. (2017). Do PCAOB inspections Improve the quality of internal control audits? Journal of Accounting Research, 55(3), 591-627. Web.
Parrino, R. J. (2016). New compliance guidance by SEC staff signals increased scrutiny of non-GAAP financial measures. Journal of Investment Compliance, 17(4), 23-33. Web.
Shoaib, A. (2017). KPMG fined £4.8m over Miller Energy audit. Web.