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We can easily conclude that accountancy isn’t experiencing its finest hour. The sector attracts a lot of negative media coverage and KPMG is the firm that is most under siege, after missing a financial disaster at a high profile client, a settlement for an accounting scandal and accusations of plain fraud and culpable conflicts of interest of senior partners with real estate deals.

Brendan O'Dwyer
Brendan O'Dwyer (photograph: UvA)

It seems extra painful that KPMG’s old and new head offices are so prominently present along the A9, as icons of the firm’s supposed megalomania and greed. Brendan O’Dwyer is Professor of Accounting and Director of Research at the University of Amsterdam Business School with a special interest in professional accounting ethics. So he seems the perfect scholar for a topical interview about public and corporate concerns that accountants’ professionalism has been taken over by commercialism and how the accountancy sector can protect its reputation. O’Dwyer has completed extensive research on ethics in accounting and the regulation of the accounting profession in Ireland, his country of origin.  

Brendan O’Dwyer: “If you want to generalise about these issues, you’ve asked the wrong person. Because I will not generalise without clear evidence. It seems to me, however, that KPMG is experiencing a perfect storm. It all concerns ethical behaviour, broadly defined. But I don’t think you can automatically, as many in the press would like to do, extrapolate from these individual instances and castigate the whole firm or, for that matter, the entire accounting profession. There are bad eggs in every environment. It is how you deal with and deter these bad eggs that is crucial.”


“This unethical behaviour in KPMG is something the entire accounting profession needs to reflect carefully on. The core definition of a profession goes back to serving the public interest. Over the past twenty years, particularly in the ‘Big 4’ firms (KPMG, PWC, E&Y and Deloitte), there has been a pronounced shift towards unremitting commercialism. And many argue, and much research has claimed, that this focus on commercialism has drowned out professionalism. This is something the profession should be concerned about. There needs to be some balance and perceptions regarding this balance are very important. Running an audit business has to be profitable, which is why I don’t think you can limit a business to audit services only given the expertise required. But the mix of audit and non-audit services and the revenue targets for partners shouldn’t raise questions such as: how can you claim to be a professional if you behave like a ‘cowboy’ trying to make as much money as possible without regard for the ethical consequences of your actions?” 

Ethical guidelines

“In the context of ethical issues, another core feature of a profession is the existence of detailed ethical guidelines and disciplinary procedures for members who breach them. I don’t think more rules or guidelines are needed. What is important is that the profession acts when issues arise, admits culpability, and makes its actions in response known to the public. Otherwise the profession will continue to lose crucial credibility. Elements of the accounting profession in Ireland lost significant credibility among the public and politicians when they didn’t act particularly sensibly or accountably in the late 90’s when a series of accounting scandals in major companies emerged. And before they knew it their cosy self-regulatory regime had been torn apart and the government had a high profile oversight body for the accounting profession in place. This was well before these bodies became common worldwide in the wake of the Enron crisis.”

Rigorous training 

“It’s a good question if there is a structural problem in how auditing is organised. As an ex-auditor and auditing educator, I am always very quick to defend the auditing process. In order to be permitted to provide an unqualified audit report opinion, auditors have to go through a rigorous amount of technical and practical training. The auditing process is very strict, but not every single reported item can or should be checked. That’s simply not economical or sensible which is why the concept of materiality is mobilised in audit. But I agree that sometimes material issues can be missed, even with the whole layer of checks and balances.” 

“Auditing goes through these periodic phases where it comes under attack. And the suggested solutions don’t change much. The European Parliament has just voted to approve regulations and directives to reform audit rules in the EU. Rotate auditors more and reduce the level and type of non-audit services that can be provided by auditors. There is a trade-off between becoming too familiar with your client and learning where to look. That only comes from experience with a client. So rotation after a reasonable period is in theory a good thing and while the 10-year period suggested by the European Parliament seems fairly sensible, it is more lenient than what was recently introduced here in The Netherlands. Moreover, while rotation is fine in principle the market for multinational audits is essentially divided among the Big 4 given their global reach. So, competition in the multinational market place will inevitably remain limited.” 

Perception is important

“I would tend to agree with the capping of the non-audited services, as the EU wants to do. The balance between audit and non-audit services is an issue around independence and ensuring that the auditor’s opinion is one you can always rely upon. Non-audit services give auditors a lot of experience and knowledge that can help them with in their audit work. But in some sense the profession has a perception problem now that has to be dealt with and curbing non-audit services is one way of dealing with this.” 

“To be honest, there is no ideal scenario in this area. We’re always going to have issues. But as long as they are not swept under the carpet and they are dealt with openly with clear accountability, that is the key thing. And the accounting profession has to be clear on its views on these type of issues when they arise. It has to come out very strongly now and indicate where it stands and what it is doing and does to promote ethical behaviour among its members.”