This case examines the high-profile scandal around the regulatory monitoring of public accounting firms. Specifically, KPMG partners used confidential information about the audits the regulator planned to inspect. The information was obtained from employees at the regulator – the Public Company Accounting Oversight Board (PCAOB). The primary case objectives are to: (i) expand students’ knowledge of the PCAOB inspection process, (ii) highlight the relationship between the regulator and the regulated audit firms, including the concepts of “regulatory capture” and “revolving door,” and (iii) increase students’ awareness of the professional and ethical issues raised by the scandal, including ethical decision-making under pressure, evaluating the appropriateness of requests made by supervisors, overcoming temptations to engage in unethical or illegal behavior, and incentivizing job performance related to ethical conduct. This case is applicable for implementation in undergraduate or graduate auditing or accounting ethics courses.
Auditor independence issues have been in the news in recent years in the U.S. and in the U.K. Investors wonder why they should trust auditors' opinions when the auditors miss corporate fraud, conflicts of interest and other malfeasance while also being accused or suspected of their own conflicts of interest. Which side are the Big 4 audit firms, in particular, on these days -the shareholder and capital markets or their paying clients?This four-part series, published in January 2020 in my newsletter, The Dig, updates our knowledge of new and old auditor independence violations, in particular by the Big 4 global audit firms since the adoption of updated rules in 2001 and additional restrictions placed on the firms by the Sarbanes-Oxley Act of 2002. I highlight the violations that were prosecuted by the SEC and many that weren't. This paper will explain why audit firms are lobbying to relax auditor independence rules, why the SEC is going along with that, and the implications for the public interest.
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