KPMG International Company’s Scandals

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KPMG is a company consisting of professionals who provide tax, audit, and accounting services. It has recently been implicated in two major scandals, which resulted in fines being paid by the firm. Since KPMG wanted to score highly in the Public Company Accounting Oversight Board (PCAOB) inspections, some of its employees colluded with PCAOB workers and obtained audit lists prior, which they used to prepare for the scrutiny.

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The other scandal entailed KPMG’s employees at all levels cheating on their internal training exams by illegally sharing answers and manipulating test results (McKenna, 2020). Although both scandals tarnished KPMGs reputation, most professors in the accounting and audit profession stated that cheating on the internal Continuing Professional Education (CPE) exams was worse than illegally getting an audit list from PCAOB.

The PCAOB Inspection Scandal

The PCAOB scandal consisted of individuals who shared information between KPMG and the inspection board. The findings of PCAOB inspections between 2013 and 2014 showed that KPMG was struggling since it got twice the indictment notes as its formidable competitors (Newquist, 2018). Since KPMG wanted a better rating, it decided to recruit former PCAOB workers and involve a data analytics firm’s services to predict which audit areas the board would inspect. They also chose to implement a financial incentive system that would award bonuses to engagement teams that did not receive comments during the inspection (Newquist, 2018).

In February 2017, one of PCAOB’s employees passed information of an upcoming inspection to a KPMG employee, but a supervisor at KPMG learned about it, and the scandal was unearthed, and those involved identified (Newquist, 2018). The syndicate implicated four KPMG employees, three of whom had been hired from PCAOB, and another two still working for PCAOB. KPMG supervisors, therefore, curtailed the misconduct of sharing audit lists between KPMG and PCAOB.

The CPE Exams Scandal

The malpractice of changing pass marks on online exams compromised the integrity of CPE exams and undermined KPMGs’ employees’ work ethics. Before November 2015, KPMG saved CPE exams on their server with a third party providing the software needed for the exams to be administered (MCKenna, 2019). KPMG would then send a hyperlink to participants which directed them to the actual exam.

The pass mark was lodged in the hyperlink, and by changing this number from 70 to 25, the pass mark would be lowered to 25 marks, and the server would accept 25 as the pass mark (MCKenna, 2019). The majority of auditors in the California office were tempered with the hyperlink mark and reduced it to a mark they knew they would easily pass the exam ( Bramwell, 2019a). In addition, they also solicited answers from colleagues before taking the exam. The integrity of CPE exams was, therefore, compromised at KPMG.

KPMG Fined for Gross Misconduct

The two scandals have made KPMG be fined for not following the set regulation in the industry. The California Board of Accountancy (CBA) fined the audit firm $1.3 million for not conforming to the audit inspection rules and for their auditors cheating in their online exams (Bramwell, 2020). In addition, the Security and Exchange Commission (SEC) also fined the global firm $50 million for having exam irregularities and stealing confidential information from PCAOB between 2015 and 2017 (McKenna, 2020).

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Before 2015, PCAOB found KPMG to have many deficiencies. Instead of KPMG improving on the flagged areas, they opted to obtain the audit lists illegally before and work on areas that will be inspected (Newquist, 2018). Audit firms’ duty is critical in ensuring that the accounting reports generated by public limited companies are precise and reliable, thus safeguarding the country’s economy. In turn, PCAOB and SEC provide accounting firms oversight to ensure that their work meets the set standards. These were the reasons the regulatory bodies fined KPMG for gross misconduct.

The penalties imposed by PCAOB and SEC on KPMG included license suspension for 30 days, followed by three years of probation period; a $1.3 million administrative penalty paid to CBA; the audit firm must also develop a free four hours coursework on ethics which must be completed by its California-licensed personnel in addition to the continuous standard online accounting exams. Finally, KPMG was obligated to corporate with CBA as further investigations were being carried out on matters described in the SEC order, which included written statements and interviews with KPMG’s personnel (Peterson, 2019).

Some critics argue that the $50 million penalties was a negligible amount to be paid by KMPG because when divided by its US partners, each partner roughly paid about $23,000 which is a trivial quota (Peterson, 2019). According to critics, SEC should have fined KPMG a billion dollars, so that each partner can part with $500,000, and this could have been a good lesson for the firm (Peterson, 2019). However, by fining KPMG, the regulatory bodies conducted their mandate of safeguarding the public interest.

Three former KPMG audit partners were charged in court because of the CPE exams cheating scandal. SEC charged Timothy Daly, John Donovan and Michael Bellach for their misconduct while administering online tests on accounting and auditing principles at KPMG (, 2020). They all denied having received CPE exam answers, although investigations revealed that they had received the answers via email, shared them, and eventually deleted them when investigations began. The lawsuit proved that KPMG had engaged in CPE exam cheating.

A survey was conducted to determine how the $50 million fine affected KPMG employees’ perception of their firm. Surprisingly, the results revealed that nearly a third of the auditors were not shocked by the cheating scandal. The $50 million settlement did not affect how they perceived their company. A total of 29.8% of KPMG employees said that the scandals did not change their perception of the company, 28.9% stated the news altered their concept of the firm, while 41.4% had no opinion (Gonzalez, 2019). Therefore, the survey revealed that the majority of the employees were indifferent to the scandal, and to them, it was just another day at work.

The Exam Cheating Scandal is Greater than the PCAOB Scandal

The exam cheating scandal is worse because it involved dozens of employees from KPMG. According to Clikeman P., Ph.D., the PCAOB investigation scandal involved four top KPMG workers and two PCAOB employees, and was discovered and curbed within a few months. In contrast, the exam cheating scandal incorporated 28 culprits who deceived the system more than four times in several years (MCKenna, 2019). The exam scandal was, therefore, widespread and lasted longer than the PCAOB inspection scandal.

When employees collaborate on CPE/ethics test, it is worse because it suggests that the workers embrace short-cuts instead of systematically and structurally working towards a goal. Short-cuts undermine trust and integrity in the accounting profession and are unacceptable. If employees can cheat in exams, it implies that they can also perform other tasks using short-cuts. The quality of the audit tests conducted on the clients’ financial statements could also be unreliable. According to Dickins, the time, expense and audit reports from KPMG may as well be questioned (Fox, 2019). If Certified Public Accountants (CPA) personnel from KPMG can cheat on their exams, then they are susceptible to using short-cuts while performing their duties and, as a result, destroy the trust the public has in outcomes of independent auditors.

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Tampering with their online exams’ pass marks showed that KPMG employees did not give the seriousness the CPE exam deserved. CPAs are high-stakes exams, while CPE exams are essential because they continuously assess CPA professionals. CPE exams ensure that CPA professionals remain relevant in their field (Bramwell, 2019b). By changing pass marks in their online exams, KPMG’s commitment to professional training and competence had been undermined.


Following the two KPMG scandals, the regulatory bodies SEC and PCAOB have imposed fines on the global accounting firm for not following the set standards. From 2017 after the court ruling and settlement, the firm has offered free ethics and integrity training program to all its auditors. Since the public trusts the results produced by audit firms after examining the financial statements from public companies, it is, therefore, imperative that KPMG and other accounting firms be impeccable in their dealings. When asked to assess the two scandals’ gravity, most accounting professors chose the exam cheating scandal as being more severe. In the accounting profession, integrity and public trust are crucial, and after the two scandals, KPMG has emerged stronger because it has reinforced its governance and compliance programs.


Bramwell, J. (2019a). SEC says $50 million fine for KPMG is ‘Significant’ and ‘Appropriate’ for all that cheating going on. Going Concern. Web.

Bramwell, J. (2019b). Which KPMG scandal is worse: PCAOB ‘Steal the exam’ or CPE training exam cheating?. Going Concern. Web.

Bramwell, J. (2020). KPMG fined $1.3 million by the California board of accountancy for lots of unethical stuff. Going Concern. Web.

Fox, T. (2019). Compliance into the weeds: Episode 128- KPMG scandal. Web.

Gonzalez, A. (2019). Survey finds that nearly a third of KPMG employees aren’t surprised by latest cheating scandal. Going Concern. Web.

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McKenna, F. (2019). The KPMG cheating scandal was much more widespread than originally thought. MarketWatch. Web.

McKenna, F. (2020). Our teaching case on KPMG/PCAOB scandal has won an award!. The Dig. Web.

Newquist, C. (2018). All the gory details from the indictment of former KPMG partners. Going Concern. Web.

Peterson, J. (2019). What price wrong-doing? Sanctions against KPMG are complicated. Going Concern. Web. (2020). SEC charges three former KPMG audit partners for exam sharing misconduct. U.S. Securities and Exchange Commission. Web.

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