Corruption in the Auditor Inspection Process: The Case of KPMG and the PCAOB

Abstract

ABSTRACT This case examines the high-profile scandal concerning regulatory monitoring of U.S. public accounting firms. Specifically, KPMG partners obtained confidential information from current and former PCAOB employees about audits the PCAOB planned to inspect. The primary case objectives are to (1) expand students’ knowledge of the PCAOB inspection process; (2) highlight the relationship between the regulator and the regulated audit firms, including the concepts of “regulatory capture” and “revolving door”; and (3) increase students’ awareness of the professional and ethical issues raised by the scandal, including decision making under pressure, evaluating the appropriateness of supervisory requests, overcoming temptations to engage in unethical or illegal behavior, and incentivizing job performance related to ethical conduct. The case also explores “tone at the top” and corporate culture deficiencies at KPMG during the scandal period. This case is most applicable for implementation in undergraduate or graduate auditing or accounting ethics courses.

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