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Being blamed
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Blaming juniors threatens audit’s future

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It takes a brave person to stand up to their seniors – especially if they fear that raising concerns could put them in the firing line. But if we let juniors take the rap what does that mean for the future of auditing?

6th Jun 2022
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Sadly, we have grown used to seeing the Financial Reporting Council (FRC) issue big fines against individual auditors and bigger fines against their firms. What we have not seen, until now, is the issuing of significant fines to audit juniors. While we do not yet have the full facts of the case, it is in my mind a very worrying turn of events. 

While working as a junior KPMG auditor, Pratik Paw was asked to type up some meeting notes. They related to discussions with overseas auditors as part of the audit of the Carillion group. At the time he was still a trainee and about 25 years old. This event took place some time after the meetings had occurred and according to some reports required the use of an older Word document, so that the metadata did not show the document was newly created. 

At this point you might think that Paw should have stood up and questioned his bosses. But let’s carefully consider whether the culture of a firm in 2017 (and I suggest any firm, not just KPMG) encouraged and supported audit juniors in raising their concerns in a manner that didn’t result in them losing all hope of a future career with the firm. Does a junior earning about £20 an hour expect to be listened to sensitively by their bosses? It takes a brave person to stand up to their seniors and while this is very much the sort of auditor we want, in reality I don’t believe we can expect an audit junior to have yet developed all of the skills to allow this type of intervention. 

Speaking up

I also don’t believe that all firms yet have a culture in which staff and partners at all levels, and regardless of ethnicity or gender, feel able to speak up about things that are or might be wrong. But this is an area of important focus in the new International Standards on Quality Management (ISQM). The standard recognises that if you have a culture that freely accepts admitting when something is going or has gone wrong, you are more likely to get a good result. You can’t bash people over the head (metaphorically speaking) for making mistakes or not reporting others’ mistakes if the reaction is going to be a blame game, with those involved losing their houses and their livelihoods. (The FRC is reportedly seeking a fine of £50,000 against Paw and a suspension from the profession.) Instead you need an approach that welcomes admissions of errors, as from errors we can all learn. 

The regulator must take care to not regulate audit out of existence. Ultimately it is people that conduct audits. If bright young men and women look at the career options available to them, what do they see for audit? A career where even as an unqualified junior you are facing years of investigation, fines that might force you to sell your house, and a ban from the profession you worked so hard to join? All because you did what you were told and maybe weren’t quite brave enough to say it seemed wrong? And if you make it through your junior years and qualify, you then still face a constant risk that something will go wrong in an audit of a hugely complex business, where maybe your judgments weren’t correct. But isn’t hindsight a wonderful thing when it comes to judgment? And as a partner you could then be facing fines of hundreds of thousands of pounds. As a Big Four partner, those sums may not be life-changing, unlike the poor audit junior.

Culture of quality

Of course some errors are worse than failures of judgment and sometimes actions do seem indefensible and warrant severe sanctions. And there is no point in auditing if we don’t have quality audit, but are we likely to get quality audit by putting our juniors in the firing line? Or do we need to build or reinforce a culture of quality in all our firms? To encourage all team members to report when something doesn’t seem right? To accept that more senior members of staff and partners must take more responsibility than juniors? 

We await with interest, the detailed tribunal findings, but in the meantime now is the time to apply the new ISQMs and build a culture of quality where everyone feels able to speak up.

Replies (9)

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By Justin Bryant
06th Jun 2022 13:53

I more or less agree with all of that and I note many other people here do too per the (record) number of thanks to my comment here and the many other comments made in the same vein:

https://www.accountingweb.co.uk/business/financial-reporting/kpmg-slamme...

One could imagine a more sensible and functional incentive system whereby if you have never found anything significantly wrong in an audit you've clearly not been doing your job properly and so should not be promoted (or if you're already a partner you should be demoted or come under increased scrutiny), rather than things being the total opposite as they currently are! (A bit like if someone has never made an AML report (SAR) - even though we all know those are ignored.)

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Replying to Justin Bryant:
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By Justin Bryant
07th Jun 2022 13:40

My above incentive scheme could have discouraged if not prevented this latest problem: https://www.theguardian.com/business/2022/jun/07/pwc-fine-galliford-try-...

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By Paul Crowley
06th Jun 2022 14:54

It does not matter that KPMG threw him under a bus.
The FRC bus only travels at a snail's pace
The FRC appear to be colluding with KPMG in putting blame on the junior

Does the FRC not review what it intends to do before making matters public?
Shame on the FRC.
That item was prepared under direct instruction by superiors
The penalty is outrageous in quantum and outwith the resources of the person.
Even if the FRC back down, the damage to the FRC reputation is permanent. The stress and anguish to the person cannot be made good

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Della Hudson FCA
By Della Hudson
07th Jun 2022 10:02

I completely agree that this seems the wrong thing to do. We need accountancy businesses and a profession that encourages everybody, but rsoecially trainees, to question.

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By jeremy28
07th Jun 2022 10:10

Happily remember one of my first audits. I was asked to backdate a signoff. I was seriously unhappy. I raised or with the audit partner who was also the staff partner, who happily informed me that it was either sign off or off payroll. No prizes to guess which one I chose. No one is going to employ an auditor who is available because they grassed their previous employer.

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By johnjenkins
07th Jun 2022 10:41

A great article, Penny, and highlights what I have been saying for years. What is the answer though? Training is the first port of call. Independence has to be the second.
I sometimes think that maybe, just maybe, HMRC could have an audit department (instead of spending millions on MTD) which is made up of suitably trained personnel in the audit field which is not actually attached to the politics of HMRC.
One thing is sure, this farce cannot go on.

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By tedbuck
07th Jun 2022 10:48

Completely agree that it is scandalous and totally unreasonable to penalise a junior trainee in such a manner. Scapegoating the people who cannot defend themselves is the lowest of the low and should bring the FRC into utter contempt which is where it deserves to be.

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By User deleted
07th Jun 2022 14:09

Was Carillion simply too complex an animal for any firm of accountants to properly audit?

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By User deleted
07th Jun 2022 14:10

Was Carillion simply too complex an animal for any firm of accountants to properly audit?

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