KPMG Corporation’s Auditing & Ethical Issues Case Study

Introduction

It seems reasonable to state that companies providing accounting services have become an essential element of the global economy nowadays. KPMG International Cooperative is one of the four biggest firms that are involved in the sector. Recently, there has been legal action against the corporation regarding cheating within the scope of its auditing examination. It might be assumed that the discussion of the case in the framework of 10 Principles of the United Nations Global Compact is a relevant action to undertake. The paper will be organized as follows; the first section will explore the fundamental ethical principles of the company within the industry. The second part will be dedicated to the analysis of the case applying one of the Principles. Finally, the third section will provide two recommendations for KPMG so that it could increase its globally responsive business practices further.

Ethical Principles of Auditing Organisations

KPMG is a corporation that exists in a form of an international network of firms that provide audit, tax, and advisory services. KPMG member companies “operate in 147 countries, collectively employing more than 219,000 people” (Who we are, no date, para. 2). It is a full-scale transnational cooperative that should follow the crucial principles of the sector. KPMG cannot allow itself to breach any of the recognized and settled global rules that determine the reputation and reliability of the firm.

Within the auditing sector, there are no unified provisions that define the functioning of the actors involved. Nevertheless, some essential ethical responsibilities may be met in a code of conduct of many respectful auditing organizations. They can be formulated as follows: transparency, secrecy, legal framework, audit evidence, and internal control system (Auditing – basic principles, no date; KPMG’s global code, 2018). All of the listed are interdependent and intersected to a great extent.

Within ethical responsibility, transparency means that a company is to provide reports on its business operations fairly, as well as to serve clients in a transparent way giving reliable conclusions and recommendations. Secrecy may be defined as non-disclosure of confidential information of customers and non-seeking any confidential data without a necessity. Then, the legal framework means that a firm should follow both international and domestic provisions of law. Audit evidence indicates that a company is to pursue independent and compliance procedures for collecting data before auditing. Finally, the internal control system means that an organization should provide a consistent and coherent structure of its inner processes with appropriate accountability.

It might be supposed that companies providing auditing services should fulfill the abovementioned responsibilities due to the following reasons. First, adherence to the listed principles contributes to high-quality services, which is a primary prerequisite for success in any industry. Second, a firm is responsible because if it breaches any of the mentioned provisions, clients that have been cooperating with this firm will also suffer as their reputation will also be spoiled. Third, these responsibilities may be considered as a foundation for creating a global system of auditing that attracts a plethora of clients who appreciate and realize benefits from such a progressive approach. It seems rational to state that KPMG fully understands the importance of the arguments above and reflects them in its key documents (KPMG’s global code, 2018). However, the company had some issues regarding its ethical responsibility recently, which will be discussed below.

Case Analysis

KMPG’s former employees and a former government accountant have been accused of the attempt to cheat on the company’s accountability. They “have been charged by federal prosecutors with taking part in a plot to help the big accounting firm get a leg up in a regulatory review of its auditing work” (Goldstein, 2018, para. 1). Goldstein (2018, para. 2) claims that the group tried to obtain confidential data “about the review process from the Public Company Accounting Oversight Board.” The latter is a body that inspects the auditing processes of accounting companies. It should be stated that the former employees were trying to improve the corporation’s overall score of performance. It seems apparent that due to the employees’ negligence, the company acted in an unethical way.

The case is to be analyzed in the framework of the Ten Principles of the United Nations Global Compact. These Principles cover four dimensions: human rights, labor, environment, and anti-corruption (The Ten Principles, no date). It might be assumed that the case refers to the breach of the anti-corruption provision. There is also an approach according to which corruption is a violation of human rights (Peters, 2019), but it is out of the scope of this investigation. The mentioned principle of anti-corruption indicates that “businesses should work against corruption in all its forms” (The Ten Principles, no date, para. 12). This is a fundamental provision that can be perceived as a foundation for transparent and fair business operations worldwide.

Then, the described case may be referred to as corruption activities directly. The latter may be defined as the misuse of given power for private gain (Principle ten, no date). It seems apparent that the employees tried to obtain some benefits for the company by offering a reward or advantage to the government accountant. This may be considered as a bribe and violates the anti-corruption provision. Even though the firm fired these four employees (Goldstein, 2018), it suffered from several reputational issues. It might be supposed that the principles of transparency, legal framework, and internal control system of auditing firms’ operations are correlated with the anti-corruption provision. From the case study, it is evident that if a corporation does not control its inner processes properly, a violation of the law – in particular, anti-corruption regulations – might take place. This demonstrates several problems within transparency, which leads to the lack of a good reputation and reliability.

Recommendations

For KMPG, it seems reasonable to recommend the following actions. First, the company might report its activities against corruption in the annual Communication on Progress (Principle ten, no date). KMPG may share its best policies and cases by submitting examples of them. Second, the firm can take collective action against corruption by joining forces with industry colleagues to expand anti-corruption endeavors. KMPG can create joint projects, as well as implement and promote them on a global scale.

Conclusion

To conclude, any company nowadays may be an object for accusing of violating the Principles – whatever market share and reputation it has. The KMPG case confirmed the latter statement and served as an example of breaching the tenth provision of the UN Global Compact. It was also assumed that these Ten Principles are correlated with the established rules of the auditing industry. Finally, for KMPG, it was recommended to report its anti-corruption progress and to cooperate with companies to handle the issue internationally.

Reference List

1. Auditing – basic principles (no date) Web.
2. Goldstein, M. (2018) ‘U.S. accuses accountants of trying to game reviews of KPMG audits’, The New York Times. Web.
3. KPMG’s global code of conduct (2018) Web.
4. Peters, A. (2019) ‘Corruption as a violation of international human rights’, European Journal of International Law, Volume 29, 4(1), pp. 1251–1287. Web.
5. Principle ten: anti-corruption (no date) Web.
6. The Ten Principles of the UN Global Compact (no date) Web.
7. Who we are (no date) Web.