Ethical Violations - South African Audit Scandal

Introduction

Browning, Levin, & Wolod is interested in expanding accounting and auditing services to Luxembourg, Malta, Monaco, and south Africa. The introduction of international operations into the organization creates new opportunities that can be leveraged by the organization to generate revenue and new risks that can be mitigated by training the recruits accordingly (Minh Duc et al., 2019). The KPMG case is recognized internationally for the egregious violation of accounting and auditing professional codes of conduct. The training process of the auditors and accountants who will be involved in the international operations will focus on the American Institute of Certified Public Accountants (AICPA) Code of Professional Conduct, South African Institute of Chartered Accountants (SAICA) Code of Professional Conduct, and International Federation of Accountants (IFAC) Code of Ethics for Professional Accountants (Schilder, 2017). The KPMG SA was selected since it encompasses comprehensive auditing and accounting professional ethics and codes of conduct that were not observed, resulting in an international financial scandal.

Money Laundry

KMPG SA, a financial institution, was contracted by the Gupta family to conduct audits of their estate but liaised with the family to launder money obtained illegally from the South African government. Money laundering is the use of deceitful, complex transfers and transactions obtained illegally through a series of businesses to appear as legitimate revenue or profits. The Free State government initiated a dairy farming project at Verde and established it intended to empower the impoverished residents and boost provincial agriculture (Holtzblatt et al., 2020). Afterward, a company named Estina was established to enable the construction of a dairy project. However, Estina was linked to the Gupta companies since it shared addresses with some of the Gupta companies. The Free State Provincial Government allocated Estina a 99-year lease to construct the dairy company. Notably, the only director of Estina was one individual who only had a background in I.T. sales, and the dairy farm was not open for public bidding despite initial statements that it would be open to private investors.

In a series of transactions, the Free State Government allocated $8 million to Estina which was diverted to a Gupta-controlled U.S. dollar account at Standard Chartered Bank in Dubai. Three-quarters of this amount was redirected to 2 Gupta-owned companies in South Africa. The remainder of this money was used to pay for a Gupta family wedding which was invoiced to Accurate Investments Ltd, a Gupta controlled company in the UAE, listing items used for the four-day wedding by Linkway Trading, which was also owned by the Guptas in South Africa. since there Accurates Bank balance at Standard Chartered was d U.S. 15,811, Estina deposited $1,999,975 from the amount initially deposited to its account by the Free State Government to Guptas Gateway Limited in Dubai (Holtzblatt et al., 2020). On the same day this transfer was made, the money was moved to Gupta UAE shell, Global Corporation LLC.

On the following day, Global Corporation LLC transferred the U.S. $1,590,000 into Accurates Standard Chartered that had been invoiced by Linkway trading company invoiced for the Sun City wedding. The $400,000 balance was transferred to Accurates Standard Chartered account. Accurate transferred the U.S. $1,986,000 to Linkway Tradings State Bank of India account (Holtzblatt et al., 2020). The transfer notes of the transfer were the invoice number issued by Linkway initially to Accurate. However, this amount was not enough to settle the initial invoice, thus resulting in another cycle of laundry where $2,999,975 from Estina arrived in Gateways Dubai account. U.S. $1,400,000 was deposited into Accurates account and was used to settle the U.S. $1,347,400 of the wedding invoice balance.

Linkway...

…investigations led to the discovery of the hidden information that resulted in the negative publicity of PwC since there were there allegations and investigations of similar scenarios with other European companies that had hired PwC. Notably, the poor reputation of the firm resulted in the decline of its cash flow by 400m (Fildes, 2017). B.T. Italy also suffered a loss in the market after publishing the accounting errors and cover-up and its affiliation with PwC.

Simon Weeden, an Italian analyst, held that the impact of the inappropriate behavior would affect the organizations financial performance and risked the organizations credibility. Since the news would be protracted, it would cause significant distortion of its accounts in Italy. In response to this criticism, PwC issued a statement stating, We will continue to co-operate fully with the FRC in its inquiries. The regulator must investigate where they believe there is a public interest, to give confidence to the financial markets (BBC News, 2017).

Integrated Reports

Integrated reports inform investors and other stakeholders of the financial and non-financial factors critical to creating value and performance for the company. This reporting framework includes information about the companys strategy, governance, and performance. KMPGbegan issuing integrated reports annually to communicate the key performance indicators to stakeholders for transparency and accountability (Triodos Investment Management, 2020). The stakeholders can raise concerns with the organization or other relevant regulatory bodies towards holding the organization accountable. Since KMPG SA has lost credibility, issuing integrated reports will invite external stakeholders, such as the SAICA and SARS. The internal stakeholders to investigate the performance of the corporation to meet the ensure all the operating protocols and professional codes of conduct are not compromised (KPMG report signals firms renewal, 2019). This measure aims to restore the organizations credibility by allowing the public and businesses to look into its…