In accounting, auditors utilize their judgment to determine decisions that will best benefit the company while practicing transparency and honesty. Three former KPMG audit partners were recently charged by the Securities and Exchange Commission (SEC) for their negligent behavior. A statement was released by the U.S. SEC on May 18, 2020, stating that misconduct occurred that jeopardized the integrity of internal training exams. Internal training exams ensure that auditors remain up to date and are continuing CPA educational standards.

It was revealed that three former KPMG LLP audit partners were giving answers to the internal training exams and wrongfully acting while the investigation of potential cheating was taking place. Timothy Daly, Michael Bellach, and John Donovan are the three former KPMG audit partners who were questioned for potential cheating. Each was responsible for committing wrongful actions in regard to exams that test the knowledge of audit professionals. These exams identify whether or not audit professionals are equipped to be in audit practice by testing accounting and auditing concepts.

According to the facts of the SEC, Bellach sent Daly photos of a training exam in October of 2018, including questions and answers. Daly asked Ballach for the questions and answers to the required training exam according to the SEC. The misconduct occurred further once KPMG began investigating the potential wrongful acts of cheating. KPMG mandated that their employees comply with them as they addressed the possible cheating by sending each KPMG professional a notice. Once this notice reached KPMG employees, Daly deleted the texts that transpired between Bellach and himself. Additionally, Daly reported to KPMG investigators that he did not receive answers for the exams. Upon further investigation, it was discovered that Daly asked Bellach to delete the messages, and once Bellach was given the notice from KPMG, he deleted them.

Donovan was charged on similar grounds in regard to sharing exam answers to members of his team. Donovan was found to have obtained answers to training exams on multiple accounts between the months of April 2018 and September 2018. During these encounters, he informed his team members of answers three times. During the cheating investigation, Donovan inaccurately informed investigators that he had not partaken in the actions of sharing or receiving answers.

The SEC argues that the qualities of integrity, honesty, and responsibility are necessary within audit professionals due to the role they play within the financial reporting sequence. The SEC determined that Timothy Daly, Michael Bellach, and John Donovan violated a PCAOB Rule due to their lack of integrity in their profession. None of the three former KPMG LLP audit partners admitted or denied the charges against them; however, all three surrendered their ability to practice accounting for the SEC. This prohibits the three from participating in public companies' financial reporting and auditing practices. However, Timothy Daly, Michael Bellach, and John Donovan are entitled to be considered for reinstatement depending upon the number of years they are required to wait to reapply, between one and three years. Steven Peikin, Co-Director of the SEC’s Division of Enforcement, stated that “These actions reflect our commitment to hold these gatekeepers responsible for breaches of their professional obligations.” In accounting, it is imperative that rules and regulations are being followed to protect the trust between individuals and the market. Without exams to ensure that professionals know accounting principles, transparency and trust within the market could be lost.

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