Calls for Australian regulators to be audited after KPMG cheating scandal

Last week, it was revealed that the accounting firm had been fined US$450,000 by US watchdog the Public Company Accounting Oversight Board (PCAOB) after a review found widespread cheating by staff over a four-year period.

According to the PCAOB, more than 1,100 firm personnel were involved in “improper answer sharing” in connection with tests for mandatory training courses covering topics that included professional independence, auditing and accounting.

However, this week, the Institute of Certified Management Accountants (ICMA) has questioned why only the US regulator took action against KMPG, despite the scandal also being brought to the attention of ASIC and the Chartered Accountants of Australia and New Zealand (CA ANZ).

“Simply put, only the USA has statutory regulation of the auditing profession that is truly independent of the big four auditing firms,” ICMA CEO, Professor Janek Ratnatunga, said.

“While the auditing profession in the USA moved from peer-reviewed self-regulation to statutory regulation by the PCAOB in the wake of the accounting and auditing scandals in the early 21st century, Australia’s regulators remain toothless tigers.

“The only reason why KPMG Australia was targeted by PCAOB is that it undertakes audits on companies listed in the USA.”

Referencing a 2019 inquiry into the regulation of auditing into Australia, Professor Ratnatunga conceded ASIC had “no statutory power” to investigate KPMG, but claimed that CA ANZ did and is yet to take any action despite being informed of the matter 18 months ago.

Professor Ratnatunga renewed ICMA’s calls for the establishment of a royal commission into the accounting and auditing profession to question the need of the legislation calling for an audit and to set up an independent body which can take action against auditors should their duties not be carried out.

“Clearly, independent oversight is needed of all the professional bodies that can undertake audits such as CA ANZ, CPA Australia and the Institute of Public Accountants,” Professor Ratnatunga said.

“These bodies should come under strict independent scrutiny of their auditor training programs and professional qualifications, similar to how the Tertiary Education Quality and Standards Agency (TEQSA) reviews higher education degrees issued by universities.

“In addition, these auditing bodies must be subjected to independent statutory regulation. This is the only way to ensure that Australian reputation in corporate governance is maintained and capital markets are protected.”

Neil Griffiths

Neil is the Deputy Editor of the wealth titles, including ifa and InvestorDaily.

Neil is also the host of the ifa show podcast.