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Which Side are They on? Do Auditors Still Protect the Public?

Accounting Ethics Symposium

I am participating in a panel discussion on July 31 in San Diego at the Ethics Symposium sponsored by the Public Interest Section of the American Accounting Association. Accounting educators should consider attending because critical issues will be discussed about the past, present, and future direction of the accounting profession. You can find out more information here.

“Who is the Public and What Does it Mean to be an Accounting Professional?”

Panelist: Francine McKenna, Faculty, Univ of Penn/Wharton and independent journalist

Accountants are required by law to maintain the public trust, and this obligation transcends any employment relationship with their firm or client relationship with a company, according to the U.S. Supreme Court decision, U.S. v. Arthur Young & Co. nearly 40 years ago. “This ‘public watchdog’ function demands that the accountant maintain total independence from the client at all times and requires complete fidelity to the public trust.” Are auditors living up to this standard and managing the tension between their public duty and professionalism versus the commercialism required to gain and retain clients ethically? Quality audit

Dealing With Threats to Auditor Professional Judgment and Professional Skepticism”

Panelist: Tony Menendez, George A. Dasaro Clinical Professor, Loyola Marymount Univ.

Auditors face common bias tendencies that can influence independence and objectivity in a negative way while creating challenges to professional judgment and professional skepticism. These threats can make it difficult for auditors to meet their ethical and professional obligations to serve as gatekeepers. The fraud triangle can help us understand these threats to the public interest by analyzing pressures and the motivation to commit fraud, the opportunity to do so, and rationalizing why such actions were taken.

“Turmoil at the PCAOB: Has the PCAOB Lived Up to its Mandate?”

Panelist: Sri Ramamoorti, University of Dayton, Ohio

The PCAOB was created by the Sarbanes Oxley Act of 2002 to provide oversight of the auditing profession (after the collapse of Arthur Andersen & Co, as well as the AICPA’s system of “peer review”). The goal, by making auditing a “regulated profession,” was to shore up public confidence and allow the profession time to reclaim its prestige and credibility. However, recent happenings at the PCAOB—first the revelation of the KPMG attempt to cheat on PCAOB inspections (2016-2017), and replacement of the Board members (December 12, 2017) then the wholesale firing of the entire, politicized Board again on June 4, 2021—have only served to further shake up public confidence in public company auditing. We have been left asking Juvenal’s ultimate governance question: “Sed quis custodiet ipsos custodes?” (Juvenal, Satire VI, 347-348), but who will guard the guards themselves?  Let us hope the “lotus flower analogy” provides the solution…”the darker the hour the nearer the dawn.” (H.W. Longfellow).

“Cheating on Exams: Should Accounting Professionals Be Trusted?” Cheating

Panelist: Steve Mintz, Professor Emeritus, Cal Poly, San Luis Obispo

The SEC brought actions against three audit firms for cheating by professionals on ethics and internal exams. EY was fined $100 million for cheating by almost 50 audit staff on the ethics component of CPA exams and in ethics CPE, the latter with software flaws that allowed exam takers to achieve a passing score by answering as little as one question correctly. The PCAOB fined PwC-Canada $750,000 and the Canadian Public Accountability Board fined them another $200,000 for having faulty quality control standards that allowed more than 1,200 professionals to cheat on training courses covering auditing, accounting, and professional independence. The PCAOB fined KPMG-Australia $450,000 for widespread cheating on internal audit integrity exams by around 1,130 partners and staff for improper answer sharing. These failures raise questions about professional integrity in accounting firms and the very culture that should support ethical behavior. Why should clients trust audit firms when they can’t get their own house in order?