The reputation of KPMG, one of the Big Four accounting firms, took another hit this week, when it fired five partners, including the head of its audit practice in the United States, for “unethical behavior.” The firings come on top of existing questions about the firm’s policies and practices: KPMG has for years been the auditor of scandal-scarred Wells Fargo and was the longtime auditor of problem-plagued FIFA, the world soccer governing body. Year after year, KPMG auditors saw no evil in either company.

The latest breach deepens doubts about KPMG and, in the process, raises fundamental questions about the integrity of all public-company audits.

Image Credit Sam Mircovich/Reuters

The partners and one KPMG employee were fired because they failed to report on leaked information they had received (or knew of) about inspections planned by the firm’s regulator, the Public Company Accounting Oversight Board, which was established after the accounting scandals at Enron. During such inspections, the regulators carefully examine a selection of an accounting firm’s completed audits. The point is to measure compliance with auditing rules, and in that way give investors a benchmark for assessing the quality of a firm’s audits.

The leaked information, which came from an employee at the regulator who no longer works there, enabled the partners to know in advance which audits would be inspected. Advance notice would give them a chance to make sure that any targeted audits were squeaky clean.