ACCOUNTING FIRMS’ ETHICS SHOULD BE CAREFULLY SCRUTINIZED
Having taught both millennials and Gen Z, I’ve always wondered the extent to which values and ethics are considered in the job search decision. Even if they want to consider it in their decision-making process, the question is how to do so. Candidates for positions can’t ask straight out about these things. They could do an Internet search to see if there are any bad marks against the firm. Today, it’s quite common for candidates to ask Artificial Intelligence (AI) a question about the ethics of firms.
I decided to ask AI the question: Is “X” an ethical firm. I only asked about the Big 4, believing the responses would give me a clear view of ethical decision-making that could be applied to all firms. The responses appear at the end of this blog.
One of the reasons for this post is to provide a prelude to my next post about millennials and Gen Z, and the extent to which they consider values and ethics in the job search decision.
OVERVIEW: ETHICS OF ACCOUNTING/AUDITING FIRMS
Looking at some of the most important data, we can see some interesting results as follows:
Deloitte: The China division was charged with operational and ethical malpractice. This could be worrisome if a candidate wants to work overseas. Are the ethical controls lighter than in the U.S.?
EY: Recent ethical lapses: cheating on internal exams and very low PCAOB inspection scores may indicate a troublesome trend for the ethics of EY.
KPMG: Recent ethical lapses: cheating on internal training exams and hiring former PCAOB staffers to provide confidential information on PCAOB audit inspection targets.
PwC: PwC Australia engaged in a scandal involving the misuse of confidential government tax information to help clients avoid taxes. This is a gross violation of confidentiality and integrity and could be indicative of a lower ethics standard for work overseas.
The discussion below tends to focus on violations of ethics in independence, objectivity and integrity.
FIRM ETHICAL LAPSES
Deloitte
Deloitte generally portrays itself as an ethical firm, emphasizing integrity, values-based decision-making, and a strong Code of Ethics. However, it has also faced accusations of ethical lapses and malpractice, particularly in its auditing division in China. Deloitte’s own documentation highlights its commitment to ethics and information security through various certifications and policies.
Deloitte’s Stance on Ethics:
- Core Values:
Deloitte explicitly lists integrity as one of its four core values, emphasizing its role as a guiding principle for decisions and actions.
The firm has a Code of Ethics and Professional Conduct that outlines the standards expected of its professionals worldwide.
- Ethics Training:
Deloitte requires ethics training for all employees, including independent contractors, and provides additional training to leadership.
- Reporting Channels:
Deloitte offers various channels for reporting ethical concerns, emphasizing confidentiality and non-retaliation.
Allegations and Concerns:
China Auditing Division:
.In 2021, Deloitte was accused of operational and ethical malpractice in its China auditing division.
Deloitte’s Response:
- Investigation:
Deloitte launched an investigation into the allegations regarding its China auditing division.
- Commitment to Ethics:
Deloitte maintains that its ethics program is robust and that it takes these issues seriously.
- Transparency:
Deloitte states it has taken steps to address concerns and reinforce its commitment to ethical conduct.
Conclusion:
While Deloitte actively promotes itself as an ethical firm and has systems in place to uphold ethical standards, it has faced criticism and allegations of unethical practices in certain areas. The company’s response to these challenges will be crucial in shaping its future reputation.
Ernst & Young
Ernst & Young (EY) has faced significant ethical challenges and scrutiny in recent years, despite having a Global Code of Conduct. While EY maintains a commitment to ethical conduct and has taken steps to address past issues, instances of cheating on professional exams and withholding information from regulators have led to substantial fines and reputational damage.
Arguments suggesting EY is not consistently ethical:
- Cheating on exams
In 2022, the SEC fined EY $100 million for employees cheating on ethics exams required for CPA licenses and for withholding evidence of this misconduct. This suggests a culture where ethical standards were not universally upheld.
- Audit deficiencies
One of LinkedIn posts reviews the PCAOB audit inspection report showed EY had a 37% audit deficiency rate in 2023, which, while an improvement from 46% in 2022, still indicates a significant rate of audits with flaws.
- Ethics training
Despite repeated warnings, cheating continued, indicating a failure in ethics and integrity training.
- Withholding evidence
EY was found to have withheld evidence of misconduct from regulators during an investigation, which is a serious breach of trust and ethical standards.
- Tax scheme
EY devised a tax scheme for Perrigo that was later questioned by the IRS, highlighting potential conflicts of interest and unethical tax avoidance strategies.
Arguments suggesting EY is committed to ethical conduct:
- Global Code of Conduct:
EY has a Global Code of Conduct that outlines ethical standards and principles for its employees.
- Total Rewards program:
EY offers a comprehensive Total Rewards program, which includes benefits and support for employee well-being.
- Constructive collaborations:
EY partners with organizations like Teach For All to develop future leaders, demonstrating a commitment to social responsibility.
Conclusion:
While EY has a Global Code of Conduct and has taken steps to address ethical lapses, the repeated instances of cheating, audit deficiencies, and other issues demonstrate that the firm has not consistently maintained the highest ethical standards. The firm’s actions, including the $100 million fine from the SEC, underscore the seriousness of these ethical breaches.
KPMG
KPMG has faced significant ethical concerns and penalties in recent years, including accusations of cheating on internal exams, sharing confidential information with regulators, and misleading investigators. While KPMG emphasizes its commitment to ethics and integrity through its Global Code of Conduct and various compliance programs, these incidents raise questions about the firm’s ethical culture and the effectiveness of its internal controls.
Evidence of Ethical Lapses:
- PCAOB Scandal:
KPMG was fined by the PCAOB for cheating on internal training exams and submitting inaccurate information to regulators during investigations.
- Misleading Regulators:
KPMG personnel were found to have shared confidential information about upcoming PCAOB inspections and used this information to improve audit results.
- Cheating on Exams:
KPMG admitted that some of its employees cheated on mandatory continuing education exams.
- SEC Fine:
The SEC fined KPMG $50 million to settle charges related to the scandals.
- California Board of Accountancy:
KPMG was also fined by the California Board of Accountancy for violations of the Accountancy Act.
KPMG’s Response and Commitments:
- Global Code of Conduct:
KPMG has a Global Code of Conduct that outlines expected standards of behavior and emphasizes integrity.
- Ethics and Compliance Program:
.KPMG has an ethics and compliance program designed to support a culture of ethical behavior and provide resources for employees.
- Increased accountability
KPMG has stated that it is increasing partner accountability and taking steps to transform its governance.
- Culture of Reporting:
KPMG encourages employees to raise concerns and has policies in place to protect those who report misconduct.
Overall Assessment:
While KPMG has made efforts to address ethical concerns and improve its culture, the repeated incidents of misconduct raise questions about the effectiveness of its measures and the depth of its commitment to ethical practices. The firm’s actions have resulted in significant fines and reputational damage, highlighting the importance of maintaining a strong ethical culture and robust compliance program.
PwC
While PwC, one of the “Big Four” accounting firms, has a stated commitment to ethical business practices and a code of conduct, it has also faced significant ethical scandals, particularly involving tax avoidance and conflicts of interest. These incidents raise questions about the firm’s actual ethical culture and whether its actions align with its stated values.
PwC’s Stated Commitment to Ethics:
- Code of conduct
PwC has a code of conduct that outlines the firm’s values and principles, emphasizing ethical behavior.
- Ethics and Compliance Program:
They have a program dedicated to ethics and compliance, with leaders committed to upholding these principles.
- Human Rights Policy:
PwC has a global human rights policy that sets a baseline for ethical conduct and respect for human rights according to PwC.
- Sustainability Focus:
PwC also highlights its commitment to sustainability, with a Platinum rating from EcoVadis recognizing its work in environmental, labor, ethics, and sustainable procurement.
Ethical Concerns and Scandals:
- Tax Avoidance Scandal:
PwC Australia was embroiled in a major scandal involving the misuse of confidential government tax information to help clients avoid taxes.
- Conflicts of Interest:
The firm has been criticized for advising governments on tax laws while simultaneously helping multinational corporations establish tax avoidance schemes according to the NY Times.
- Lack of Accountability:
Investigations into PwC Australia revealed a culture where senior leaders were not held accountable for unethical behavior.
- Lack of Diversity and Inclusion:
There have been allegations of discriminatory practices within the firm, particularly affecting Black, female, and non-native born employees according to Reddit.
Conclusion:
While PwC publicly emphasizes its commitment to ethics and has implemented measures to promote ethical behavior, the firm has also been involved in significant ethical breaches. This raises questions about whether its stated values are consistently reflected in its actions. The extent to which PwC is truly an “ethical firm” is a matter of ongoing debate and scrutiny, particularly in light of the recent scandals and the need for cultural change.
SUMMING IT ALL UP
It can’t be denied that the firms have been embroiled in serious ethical lapses, especially in the past few years. Cheating on internal training and CPE exams is shocking, especially when the tests were administered for ethics courses. Each of the Big 4 firms, except Deloitte, seem to have gotten caught up in the cheating scandals. KPMG’s hiring of former PCAOB inspectors to gain inside information brings into question the overall ethics of the firm, especially integrity, and the firm has received high scores on deficiencies in audits by the PCAOB. PwC’s tax problems in its Australia firm which shows the misuse of confidential government tax information raises a red flag whether the firms are paying sufficient attention to ethics in their overseas operations. The same could be said about Deloitte’s China auditing division. Finally, EY has experienced a variety of violations including cheating on training exams, tax schemes, and a high level of audit deficiencies. Moreover, an ethical problem in soliciting new audit business for a potential client of EY, Sealed Air, raises questions about the firm’s independence. I have addressed these issues before in a LinkedIn post.
Revisiting AI
AI provides reasons why a candidate should find out about the ethics of firms with which they intend to interview.
- Professional Integrity: Accountants are bound by strict professional codes of ethics, emphasizing integrity, objectivity, and confidentiality. Working for an unethical employer can create serious conflicts with these professional obligations and potentially damage their reputation or career.
- Avoiding Legal and Reputational Risk: Unethical practices within a company, like fraudulent reporting, can lead to legal penalties, financial losses, and reputational damage for everyone involved, including the accountants.
- Work Environment and Job Satisfaction: A strong ethical culture contributes to a more positive and secure work environment, which can lead to higher job satisfaction.
The bottom line is whether candidates for positions should investigate these matters and use the information gathered in job selection situations. My next blog will address this issue.
Posted by Dr. Steven Mintz, aka Ethics Sage, on July 29, 2025. Learn more about his activities at: https://www.stevenmintzethics.com/ and signing up for the newsletter.