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Hard Lesson: CPA Firms Issuing Opinion Financial Statements Have Ethical Responsibilities

Hard Lesson: CPA Firms Issuing Opinion Financial Statements Have Ethical Responsibilities

A shocking grand jury indictment that was recently unsealed proves that attempts to game the system when it comes to audit oversight are a very, very bad idea.

The U.S. Attorney’s Office revealed that three former executives of Big-4 accounting firm KPMG and two employees of the Public Company Accounting Oversight Board (PCAOB) were charged in Manhattan Federal Court for conspiring to steal valuable and confidential PCAOB information and use it to fraudulently improve KPMG audit results. The plan was to defraud the Securities and Exchange Commission (SEC) and the PCAOB by obtaining, disseminating, and using confidential lists of KPMG audits that the PCAOB would be reviewing.

The PCAOB inspects accounting firms that audit publicly owned companies on an annual basis by privately selecting audits for the staff to inspect and review the auditing company workpapers. In previous years, KPMG had performed poorly in PCAOB inspections compared to its competitor firms. To help improve its performance, KPMG recruited and hired some former PCAOB personnel. But the new employees did more than just provide experience and expertise. They brought with them illegally acquired information about what audits would be performed and when—even gaining the help of PCAOB employees still on the inside.

This is an obvious misstep by the KPMG and PCAOB executives involved, but it doesn’t take this much of a blunder to raise suspicion. All CPA firms that issue opinion financial statements undergo peer reviews, but only audits of publicly traded companies are reviewed by PCAOB. Other reviews are administered by entities like the American Institute of CPAs (AICPA). These entities provide codes of conduct that include both technical and ethical standards that governing bodies take very seriously. Feel free to contact us with questions about how CPA firms stay on the ethical side of the law when it comes to issuing opinion financial statements.

Image Copyright: grinvalds / 123RF Stock Photo

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