Please ensure Javascript is enabled for purposes of website accessibility

Some Guy in Montana Thinks Audit Firms Are Corrupt, Untrustworthy

Jim Elliott headshotJim Elliott writes an opinion column for the widely-distributed Missoula Current (that’s a joke) and in today’s column he decided to address the EY cheating scandal. His familiarity with the ethics exam EY auditors cheated on begins and ends with a quick Google search but as an outsider to accounting and a member of the public audit firms are meant to protect, his viewpoint is of interest. Why? Because when columnists at tiny Montana papers are writing about a lack of ethics on the part of huge firms it’s a major PR problem for the profession. And given the ongoing pipeline issue, this is a problem the profession can’t afford to have. Why is some random dude in Montana opining about accounting firm ethics? Why is this even on the radar of this guy? Wasn’t creating the PCAOB supposed to prevent middle America from hearing about accounting firm scandals once Enron faded from their minds?


Take it away, Jim!

Whenever I hear someone talk about how honest they are, I instinctively put my hands in my pockets to see that everything that should be there is still there. So, pardon me my skepticism when I read this blurb from a large accounting firm’s website: “Our Global Code of Conduct is a clear set of standards for our business conduct. It provides the ethical and behavioral framework on which we base our decisions every day.”

Or this one: “… we hold ourselves to the highest moral and ethical standards at all times.”

The first one is from giant accounting firm Ernst and Young, which has just been hit with a $100 million fine by the U.S. Securities and Exchange Commission for covering up employees who cheated on mandatory ethics tests. The second is from another giant accounting firm’s “Code of Conduct,” this one called KPMG. Last year KPMG was fined $50 million for doing the same thing as Ernst and Young.

Why is this kind of thing important? Because it seems indicative of an almost complete lack of ethical conduct in big business. A major function of these accounting firms is conducting audits of their clients’ finances

TL;DR: giant audit firms can’t be trusted.

They help businesses to follow best accounting practices and warn them when the audit finds something amiss. When auditing firms abuse their ethical responsibilities, bad things happen. [totally expected Enron reference here]

LOL bless his heart.

To demonstrate how boneheaded it was for anyone to cheat on the ethics exam, he lays it out for the uninitiated:

And how hard are these tests? Examples I have looked at range from 40 to 50 questions, multiple choice, open book, with generous time limits. In California it can be retaken 5 times in a year until the person passes the test.

Here’s a sample question from the California test:

“The Principles [of the organization] state that a member has responsibility to: (a) Colleagues. (b) Clients. (c) The public. (d) All of the above.”

The correct answer is “all of the above”.

Why are ethics important? Let’s reduce it to an understandable level. What would you feel if you found out that a teller at your bank told people how much you had in your account? Would you go to a doctor whose nurse told others about your health? Would you use a contractor who padded your bill?

The good people of Missoula may not understand PCAOB standards and audit quality but surely they understand the concept of ethics.

Anyway, he ends with a concerning observation when you consider that this is some random guy looking in at the profession and giving his opinion based on his own value system, a value system that I imagine most average Americans hold (or think they do, anyway).

To make sure that companies are on the up-and-up there are standards imposed on financial record keeping. The organizations responsible for reviewing those finances for accuracy are the auditing firms—the guards. When the guards themselves are corrupt, how can we trust their statements about the companies they audit, and then how can we trust those companies themselves?


This is far more scathing a review than the PCAOB ragging on audit firms for consistently poor auditing, it’s how regular people feel about hearing huge and illustrious accounting firms have screwed up. Again. These are the opinions that should really matter to firms; once you’ve shot your reputation with the average public, there’s little you can do to get that back. That’s a way bigger deal than a penalty that shakes out to only 0.25% of FY revenue.

EY Auditors Cheated on Ethics Exams and Tried to Cover It Up, Will Pay a Record Fine for Naughtiness

4 thoughts on “Some Guy in Montana Thinks Audit Firms Are Corrupt, Untrustworthy

  1. Jim Elliott writes the trust in his opinion column. I only take exception to two matters-

    1. His article states >>Why are ethics important? Let’s reduce it to an understandable level.<< People understand; there's no reason to "reduce it" to an understandable level.

    2. The accounting firms are only as strong as their weakest link. If 0.5% of the employees are cheaters, these employees drag down the whole firm. He doesn't mention this matter. How to get rid of the 0.5%?

    Thank you for posting this article with the link.

  2. 1) If 75% of a big-4 firm’s staff have never worked anywhere else will they hide ethics problems out of misplaced loyalty to the short term interests of their firm?
    2) Would breaking up the big-4 cartel improve or reduce ethical compliance?

    1. One thing that really gets me is the Big 4 + Large Regional firms are starting to bring estate planning attorneys in house for their high net worth tax clients.

      I really hope clients are not stupid enough to fall for this. Seems like a very, very big conflict of interest for the firm to be paying their lawyer and CPA. It guarantees that anything set up will be in the firm’s best interest and not in the clients’. The estate planning attorney should serve as a natural check/balance to whatever the CPA is doing. This is all sorts of exploitative. It is extremely risky for the client.

      How does this not violate independence?

      I certainly think more large fines are necessary as are breaking up the firms.

      Drink the Kool-aid firm culture really needs to go. It is destroying the profession.

  3. If it walks like a duck and quacks like a duck then…is it not a duck? Unsure? Try… looking behind it for any foot prints it makes and follow…usually there is two, another with different colors. A razor is sharp and can cut and it doesn’t take a barber to tell me that…so, why knock on the door twice? The point up is garbled the readers focus by questioning what another is questioning? Small-town Montana USA might be a good place to find an unbiased opinion. In the other hand, the Kool-aid culture, Mr. Jones remotely working in Guyana not so much. The orders was given and who was given a second chance…a tragic simple truth and now a truth in irony. If 0.5% can be the cause then it’s the 0.5% at the top and let’s not play hammer pretend company business isn’t run top down, just as the Pro(fit) Jim showed us the Anvil fashioned by broken example just the same. A fine example would be $10 million…to a company that had revenue $40 billion in 2021. Broken? Wake up. Pretend is asking the wool pretending to sleep…why is the wolf tending the sheep?

Comments are closed.