KPMG Discussion - Ethics with Lynch PDF

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Ethics with Lynch...

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3. Was their pressure on Mr. Sweet to violate confidentiality? What type of pressure? Who placed the pressure on Mr. Sweet? Yes, Mr. Sweet was pressured into violating confidentiality due to internal pressures within the company. David Middendorf, KPMG national managing partner at the time, told Sweet to remember where his paycheck came from, and urged him to be loyal to KPMG, asking for a copy of the PCAOB list of inspections. KPMG executives were quick to ask Sweet for this insider information and urged him to help recruit others from the PCAOB. Sweet probably justified his decisions to leak confidential information on the basis that significant conflicts with management could be avoided if he did. Despite these pressures, they still do not justify Sweets’ actions. He chose to remain loyal to Middendorf’s interests, not the shareholders. Sweet should have maintained his ethical integrity and resisted this internal pressure made by executives. According to Mintz, “Integrity is a fundamental trait of character that enables a CPA to withstand client and competitive pressures that might otherwise lead to the subordination of judgment” (277). A person of integrity will act out of moral principle and not expediency. That person will do what is right, even if it means the loss of a job or client. In accounting, the public interest must always be placed ahead of one’s own self-interest or the interests of others, including a supervisor, which Sweet failed to do. But according to the text, “even honest individuals can commit fraud in an environment that imposes sufficient pressure on them. The greater the incentive or pressure, the more likely that an individual will be able to rationalize the acceptability of committing fraud” (277). These types of pressures do occur in the real world of business and accounting. A similar case occurred with WorldCom; where accountants allowed their judgment to be compromised by pressures applied by top management to put the best face possible on the financial statements. Cultures may support or work against ethical behavior and it is our professional duty not to give into this pressure and always look at the bigger picture, no matter how difficult the situation. Steven M. Mintz, “Virtue Ethics and Accounting Education,” Issues in Accounting Education 10, no. 2 (Fall 1995), p. 257.

5. Who is at fault? I believe that everyone was at fault and played a role in this unethical act, but some played a larger role compared to others. There is a clear material weakness in controls of the PCAOB because confidential information got out of the PCAOB to a former employee. Employees of the PCAOB gave KPMG executives advance peeks at the secret lists of KPMG audits the PCAOB planned to review during annual inspections of the firm, enabling KPMG to better prepare for inspections. According to Dave Michaels and Michael Rapoport, “the board is stocked with employees who formerly worked for the industry it oversees, and many of its alumni are now employed by the Big Four firms.” This is a related party issue that must be addressed to ensure ethical standards and proper controls. Sweet had previously inspected KPMG as a PCAOB member, and then switched to working for KPMG while interacting with regulators and still gaining confidential information. Sweet played a larger role in this case because he willingly took confidential PCAOB documents with him when he went to work for KPMG in 2015 and continued to acquire and share PCAOB information with KPMG executives for two years after.

Although he was pressured by executives, he made the wrong decision and was subordinated by the judgement of others. He did not maintain his professional obligation to the public. David Middendorf is also a major contributor to this problem for pressuring his employee in such a manner. The top executives in general breached duty of care because they failed to act in the best interests of the shareholders. It is their legal and ethical duty to the corporation to always put the interests of the public first. Due to their unethical actions, they suffered great consequences.

Michaels, Dave, and Michael Rapoport. "KPMG Fires Partners Over Leak of Audit Regulator's Confidential Plan." The Wall Street Journal. 12 Apr. 2017. Dow Jones & Company. 08 May 2019 .

I agree that everyone played a part in this scandal. The PCAOB must reassess their internal controls to ensure that such a problem does not occur in the future, as their reputation has been significantly harmed due to their lack of adequate controls. They should make sure that employees who have worked for the PCAOB cannot work for a firm that they have inspected within a specific amount of time (longer than two years at least) in order to ensure that this confidential information cannot be transferred. PCAOB employees participated in unethical behavior by sharing information with KPMG executives, and the PCAOB must contemplate who should be having access to which confidential documents. This must be analyzed tremendously to ensure that only the necessary individuals have access. It seemed that the employees leaked this information to executives rather easily, which causes a red flag. As for KPMG, they must work on setting an ethical tone at the top for which they lacked. People may no longer trust the company or its intentions due to this issue. They must regain the public’s trust by creating an ethical environment starting from the top down. The tone at the top is crucial as management influences how employees respond to ethical challenges. If management upholds ethics and integrity, employees will be more inclined to uphold those same values as well. According to the text, if top management is “unconcerned about ethics and focuses solely on the bottom line, employees will be more prone to commit fraud” (3), which is what we see occurring in this case....