SEC Chief Accountant Urges Audit Firms to Uphold Ethical Standards and Accountability

Staff members at the Securities and Exchange Commission (SEC) have raised concerns about audit firms setting poor examples for junior employees by failing to appropriately discipline senior leaders who breach ethical standards, according to a statement from the agency's chief accountant, Paul Munter.

Munter, in a statement released on Wednesday, questioned the message sent by audit firms when they do not hold accountable individuals who remain in leadership positions after facing disciplinary actions from regulatory agencies. He pondered whether this practice implies that skirting rules is acceptable as long as one avoids getting caught.

Regulators, including the SEC, consider auditors crucial gatekeepers for financial markets and are proactive in disciplining individuals and firms that neglect their responsibilities. Recently, the SEC imposed a substantial penalty of $2 million and a permanent suspension on Benjamin Borgers, the owner of audit firm BF Borgers. Similarly, the Public Company Accounting Oversight Board (PCAOB) levied a record $25 million penalty on KPMG Netherlands and imposed a permanent bar and fine against Marc Hogeboom, the firm's former head of assurance, for alleged misconduct.

Munter highlighted the issue of audit partners receiving temporary suspensions and then returning to their firms without significant consequences. He emphasized that when firm leadership fails to set a strong ethical tone, it risks undermining the firm's culture, professional skepticism, and public responsibility as capital market gatekeepers.

Munter advised firm leaders to lead by example through their actions rather than relying solely on words, codes of conduct, and compliance checklists. He posed several questions for consideration, including whether firm leadership supports staff in making tough ethical calls and whether they hold themselves and others accountable transparently.

He stressed the importance of making ethics and character integral to the hiring, retention, and promotion criteria for all professionals within the firm, even if it impacts short-term profitability. Munter also recommended that firms increase consideration of professional integrity and ethics in compensation determinations, suggesting that technical excellence and integrity should be rewarded as much as billing and profitability.

In conclusion, Munter's statement underscores the critical role of firm leadership in fostering an ethical culture and holding individuals accountable for their actions within audit firms.

By fLEXI tEAM