Time for a Tone Test of the Profession

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I intended to start this week examining the growing ecosystems of cryptocurrency exchanges and potential risks. For those that follow me on Twitter, you know that my true passion lies in regurgitating various blockchains and identifying potential operational and environmental risks that may be overlooked.

Instead, I was distracted by the cheating scandal of KPMG. Hat tip to Francine McKenna (The KPMG cheating scandal was much more widespread than originally thought) and Thomas Fox (Day of Reckoning for KPMG – Failures in Ethics) for providing timely coverage. I urge you to take a moment to read them. Reflect on what this means for you, your firm and the profession. Below is a bit of my reflection under an emerging technology lens.

Most unnerving to me was the minimal attention this order received in my social media channels. Compounding the silence was a steady stream of current and upcoming conferences repurposing finance, technology, and blockchain buzzwords for marketing. Almost all seemed to emphasize profit and billable hours over ethics, trust, and skepticism.

Many of these conferences look more like an infomercial on how to make millions with technology. Perhaps I am overly sensitive, as I left public practice in 2018 when I realized that I was uncomfortable with what was emerging as acceptable in the crypto and blockchain space.

The narrative I see from thought leaders, influencers, and leading firms is an emphasis on learning the tools. There is a fear being perpetuated that non-accounting service providers are using technology to take over our profession. I agree with this in part, but it is not the technology itself that will unseat us, it is our desire to chase it and a submission to those with limited to no formal financial training.

I have witnessed what a future with limited accounting in our advanced degrees programs would look like over the past year. The prevailing narrative that many seem to be subscribing to is that because data is publicly available and accessible, it must be correct.  

The problematic actions detailed in the Order speak to problems I would suspect are not limited to KPMG or the Big 4. This is endemic to our industry. We as a profession are tasked with “tone” tests for our clients. When was the last time we conducted an internal one; on ourselves, our firms, our profession?

The SEC Cease and Desist Order covers two violations. The first violation, obtaining information and altering documents prior to PCAOB inspections was known and covered in the past. However, the second violation: “KPMG audit professionals – at all levels of seniority – engaged in misconduct in connection with examinations on internally-administered training courses that were intended to test whether they understood a variety of accounting principles and other topics of importance.”

The violation accounts various actions taken including: sharing of answers, attempts to conceal actions, and altering the software server instructions to permit a passing rate of 25 percent rather than 70 percent. Some of these internal training courses were assigned as part of a prior settlement with the SEC for prior audit deficiencies.

They cheated on their punishment!

The combination of competency and ethics deficiencies should be unsettling. I am an advocate of possessing a working familiarity with other disciplines, but not at the cost of the core. I cannot imagine caring more about compensation and a gold star than obtaining knowledge that may benefit sector stakeholders.

Maybe it is just me and my desire to be a professional student on a limited budget, but I cannot imagine taking the time to actually learn the material is more time consuming than reverse engineering server software, coordinating and concealing entity-wide participation.

I believe this should be especially concerning to our profession in the area of fintech. Cryptocurrency and tradeable tokens introduce multiple sectors with distinct regulations and risk factors in which one is not properly trained. I continue to see a push toward adoption, which limits training and understanding to a retail level. There are scores of classes and aides for accountants to assist their customers in how to:

  1. Accept and store cryptocurrency
  2. Encourage enterprise use
  3. AML/KYC compliance training

There is a paucity of material covering:

  1. Risk factors associated with accepting and holding cryptocurrency beyond “volatility and regulatory uncertainty.”
  2. Parsimony and an assessment of additional risk factors and considerations.
  3. Understanding of the AML/KYC risks at the corporate level, how financial intermediaries, exchanges, and ATMs could be an attractive vehicle for Professional Money Laundering Networks.

Before heading into your next CPE, take a moment to reflect on your core offering. Tools will come and go, and the technical skills you acquired on one product will quickly translate to a more advanced solution. It is imperative that we do not leave our foundation, sense of right and wrong, and core values behind.

In addition, we have the ability and responsibility to apply our knowledge to new tools to challenge them. We have the ability to offer unique perspectives that should not be dismissed in favor of obtaining external approval.

As you reflect on this, I urge you to take an inventory of what you doing to expand your core. Do we need to redesign and rethink delivery methods? Would panel sessions that feature competing views and perspectives be helpful? How can we as a profession utilize our skills to lead in emerging tech?

And for anyone that offers up blockchain as a solution to this, please invite me to that fireside chat.

Editor's Note, 6/28/19: Since the publishing of this blog, KPMG corporate communications issued the following statement: 

“Integrity and quality remain our focus, as always. The foundation of our role as auditors and advisors is trust. We have learned important lessons through this experience and we are a stronger firm as a result of the actions we are taking to strengthen our culture, our governance and our compliance program. As we move forward, we are committed to delivering the highest quality and fulfilling our important role in the capital markets.”

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