Operation Broken Gate

The SEC considers the auditor as the key factor or the gatekeeper in protecting public interest through strictly follow the professional standards to perform the audit job. However, under SEC’s investigation, there are many cases in which many auditors and audit firms, especially the big four accounting firms, did not follow the professional standards in doing the audit job. That led SEC to concern about the violation of the accounting profession.
Independence is the first common issue considered by the SEC. To detect frauds or violations of independence of the CPAs and CPA firms in providing auditing services for their clients and protect the public interest, “Operation Broken Gate” was launched by the SEC in October, 2013. Through the
The accounting firm was charged $8.2 million by the SEC because the firm violated the independence principles of the SEC. While providing the audit service, KPMG provided accounting services like bookkeeping, payroll for the audit client. That creates the self-review threat and impairs auditor’s independence which is stated in the second principle of the general standard of independence of the SEC “places an accountant in the position of auditing her own work.” KPMG also provided management service through sending the staff to work on senior position for its client affiliate. Moreover, the staff was a senior management of the client’s affiliate before and just retired. The accounting firm created the management participation and advocacy threats to independence and violated the third and fourth principle of the SEC independence standards which states “place the accountant acting like the client’s management or employees and being an advocate for the client.” Moreover, KPMG let some employees own the client’s stocks that impairs the auditor’s independence as pointed out by the first independence principle “creating reciprocal interest between the two parties.” Through the case, we can see that KPMG violated all independence principles of the SEC even there are many rules established by the SEC, AICPA, and PCAOB to help them maintain
Additionally, they even placed their own interest before the public interest through reducing audit work to make the audit process easy for the client. These issues clearly violate the independence objectivity principle which the auditor must have and maintain in order to provide professional audit service. According to the Revised AICPA Code of Conducts, Sub section 01 and 02 of principle 0.300.050 “Objectivity and Independence,” there must be no mutual or conflict interest created between the auditor and the client in order to maintain auditor independence. Objectivity is very important in accounting profession since maintaining objectivity helps auditors make unbiased decision or make decision free conflicts of interest when facing unethical issues. Additionally, independence is an important to keep an auditor from involving to any relationships that may impair auditor’s objectivity. Therefore, in my opinion, a CPA auditor cannot be objective without being independent. Mutual or conflicts interest is the most essential issue which lead a CPA auditor to be not independence and easy to make a favorable or unfavorable decisions which benefit the auditor first while offering the attest service. Conversely, without being