Record fines on audit profession recycled to help new generation

A wave of exam cheating and shoddy work that has marred the reputation of the world’s biggest audit firms has one upside for the profession: penalties imposed by regulators are funding a new generation of idealistic would-be accountants.

The US Public Company Accounting Oversight Board is planning a big expansion of its scholarship programme for students this year, after levying record fines totalling $11mn in 2022.

The penalties — more than $8mn of which came from a single firm, KPMG — cover alleged misdemeanours such as doctoring audit papers, outsourcing work to unregistered audit firms and sharing answers on professional tests.

Under the law that created the PCAOB 20 years ago, in the wake of the accounting scandal at Enron, the fines it collects are put in a scholarship fund and distributed to promising accounting students across the US to help cover tuition and other education costs.

The agency gave out 250 awards in 2022 and is planning as many as 325 this year, according to PCAOB chair Erica Williams.

“We have to make sure that investors are protected today, but we’re looking to make sure they’re protected tomorrow as well,” she said. “There is a decreasing number of people majoring in accounting, and this is our opportunity to pull more young people into the field and also to expand the types of young people who see it as a path for themselves.”

Among those people is Ei Aung, who is studying at Maryland university to pick up a career in accounting that she first pursued in her native Myanmar. After moving to the US with her children five years ago, she worked as a server in a nursing home. This year she will be interning at KPMG.

“I love tracing things, finding things,” she said. It can be a long and difficult road to become a qualified accountant in the US, but “if we try very hard we can change our lives”.

With Democrats in power in Washington, a new PCAOB board has been installed to take a more robust approach to enforcement of professional standards.

The PCAOB had not always levied fines on the firms it found flouting its rules, as it previously allowed some to settle without paying a monetary penalty, but it did so 100 per cent of the time in 2022. It also stepped up fines on individuals. More than half the fines in 2022 were levied on firms and individuals outside the US, since PCAOB is charged with overseeing all the firms that audit US-listed companies, wherever they are in the world.

KPMG member firms in the UK, Colombia, India, Canada, Italy, the Netherlands, South Africa and South Korea all paid penalties in 2022, as did the firm’s vice-chair of audit in the US, who was penalised for failing to properly supervise assistants in connection with KPMG’s use of information stolen from the PCAOB.

Williams said last month that the agency’s inspectors had spotted a higher number of deficiencies in audits over the past year, and disruptions caused by Covid should no longer be used as an excuse. Many enforcement actions grow out of problems spotted by the agency’s inspectors, suggesting that penalties on the profession could remain elevated if problems are not fixed.

“I’d love to have to find a different way to fund our scholarship programme because if everyone was complying with the law, then we wouldn’t have as many fines,” Williams said.

The agency is not giving any impression it expects that to happen soon, however. An end-of-year social media video trumpeted the record penalties, ending with the words “And we are just getting started”, over footage of coins raining down on to a big pile of cash.