Carillion and a lesson in ethics

The junior in question has claimed he was unaware he was doing anything wrong. Noting his lack of training, as well as KPMG’s culture, as reasons for being innocent of any misconduct. This is in contrast to comments from representatives of KPMG who comment:

 “no ethical training was required to tell staff not to lie”

And that the failings were due to individuals within KPMG, not an indication of a systematic issue.

The allegation at the centre of the FRC’s claim of being misled

The FRC claims it was misled during its investigation of the 2016 Carillion audit. And six members of the audit team are accused of creating false meeting minutes and spreadsheets in response to the questions raised by the FRC.

The most junior member of the audit team has claimed he was asked by his colleagues to type up the minutes of a meeting he did not attend. These were later sent to the FRC as evidence, not realising the full extent of what he was being asked to do.

In defending his actions, the junior highlighted he was part way through his accountancy training. He had received no training from KPMG to help him identify what he was doing was wrong. And he highlighted KPMG’s fast paced culture which required its junior to work quickly and without fuss.

Who is responsible for upholding ethical standards in a firm?

Whilst it is true that individuals are responsible for their own moral compass, firms are expected to ensure their staff uphold ethical standards.

In order to do this, firms should have in place a strong Ethics Policy.  This should be communicated to its staff. Appropriate procedures need to be implemented to ensure the policy is being adhered to. These should offer a way of reporting bad practices by other members of the team internally., i.e. a whistleblowing procedure, as required.

Although accountancy trainees receive ethics training as part of their work towards gaining their professional qualification, firms should also provide sufficient training to ensure engagements are conducted in accordance with the relevant ethical requirements.

Whilst developing an Ethics Policy and training are important stages, the importance of upholding ethical standards also needs to be ingrained within the day to day work such as within the firm’s assignment manuals.

The impact of getting this wrong

Whilst it is clear that we all have a role to play in maintaining ethics within the firm we work and the profession as a whole. It is also clear that the fallout from Carillion’s collapse and KPMGs reputational damage will be felt for many years to come.

None of the six accused by the FRC of misconduct continue to work at KPMG and now face sanctions. Firms, principals and individuals, therefore, cannot ignore the importance of maintaining ethical standards.

How Mercia can help

Mercia offer a number of firmwide compliance manuals, as well as technical manuals for audit and non-audit assignments, which incorporate the requirements of the ethical standards.

Mercia also offer a number of courses and E-learning modules which centre around the ethical rules.