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

Abstract

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.