Learning from Ethical Violations in Public Accounting:

A South African Audit Scandal and a Firm’s Transformation

 Meet the Authors
Mark Holtzblatt, Ph.D., CPA
Associate Professor of Accounting
Cleveland State University
Cleveland, OH 44115
Email: m.holtzblatt@csuohio.edu
Craig Foltin, DBA, CPA
Assistant Professor of Accounting
Cleveland State University
Cleveland, OH 44115
Email: l.foltin@csuohio.edu
Norbert Tschakert, Ph.D., CPA
Gassett-Schiller ’83 Professor of
Accounting
Salem State University
Salem, MA 01970
Email: ntschakert@salemstate.edu
CASE SUMMARY:
This case provides students with an opportunity to examine ethical issues and challenges encountered
in public accounting. This real-life case occurred in South Africa, where wide-spread corruption and
unethical behavior severely affected a global accounting firm.

Due to the resulting negative publicity, the firm suffered significant reputational damage and
underwent investigations by the audit regulator and professional accounting society. Consequently,
the firm initiated major transformations of management, governance, audit quality procedures, and
risk management.
CASE LEARNING OBJECTIVES:
(1) Examine ethical challenges that global accounting firms face.
(2) Discuss the importance of ethical behavior to an accounting firm’s reputation and steps firm’s can apply to
increase ethical behavior.
(3) Describe and evaluate how professional skepticism can help auditors identify ethical misconduct by their clients.
(4) Explain the value and benefits of auditor independence in ethically challenging situations.
(5) Evaluate the legal structure of global accounting firms and potential liability issues.
(6) Evaluate regulatory changes for the accounting profession that could help prevent auditors from unknowingly
becoming facilitators of questionable activity by their clients.

COURSES FOR CASE IMPLEMENTATION:

(1) Auditing
(2) Forensic Accounting
(3) International Accounting
(4) Accounting Policy
(5) Ethics courses
 Table of Contents
Part 1: Guptagate – The Gupta Family Influence on Former President Jacob Zuma
Introduction
Publicized Evidence of the Gupta’s Influence
____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

Part 2: KPMG SA’s Involvement with the Gupta Businesses

The Dairy Farm Scandal Involving the Gupta’s and KPMG SA
KPMG SA Audit Clients Lost and Clients Still Scrutinizing KPMG SA
Impact on South Africa’s Reputation from the Scandal
____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

Part 3: Investigations into KPMG SA’s Ethical Violations

IRBA - Independent Regulatory Board of Auditors
SAICA- South African Institute of Chartered Accountants
____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

Part 4: KPMG’s Renewed Commitment to Integrity and Quality

KPMG SA’s first Integrated Report and Specific Responses and Changes
____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

Part 5: Case Requirements

ACCOMPANYING CASE RESOURCES AND MATERIALS
1. Website, Online Documents and Videos
(also contained in Appendix A of the case)

2. Multimedia Power Point for instructor classroom use

Multimedia PowerPoint presentation, with video links, for instructor classroom use (84 slides)
• Case Learning Objectives and Implementation Guidance

• Teaching Notes: Suggested Answers to Assigned Case Requirements

An Overview of the Case
 Table of Contents
Part 1: Guptagate – The Gupta Family Influence on Former President Jacob Zuma
Introduction
Publicized Evidence of the Gupta’s Influence
____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

Part 2: KPMG SA’s Involvement with the Gupta Businesses

The Dairy Farm Scandal Involving the Gupta’s and KPMG SA
KPMG SA Audit Clients Lost and Clients Still Scrutinizing KPMG SA
Impact on South Africa’s Reputation from the Scandal
____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

Part 3: Investigations into KPMG SA’s Ethical Violations

IRBA - Independent Regulatory Board of Auditors
SAICA- South African Institute of Chartered Accountants
____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

Part 4: KPMG’s Renewed Commitment to Integrity and Quality

KPMG SA’s first Integrated Report and Specific Responses and Changes
____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

Part 5: Case Requirements

Video: South Africa’s ‘state capture’ scandal widens
https://youtu.be/J2jRuvxNBn0
Gupta-Zuma Corruption Scandal
Gupta-Zuma Corruption Scandal
Gupta-Zuma Corruption Scandal
The Gupta Estate at Saxonwold, a suburb of Johannesburg, South Africa
Sahara Computers, one of the earliest Gupta investments
in SA, reported 1.1 billion rand of revenue in 2016,
equivalent to about 80 million USD (Moyo 2016).
Furthermore, in 2016, Atul Gupta was named as SA’s 7th
richest person, with a reported net worth of 10.7 billion
rand, equivalent to about 773 million USD (Chutel 2016).
 Table of Contents
Part 1: Guptagate – The Gupta Family Influence on Former President Jacob Zuma
Introduction
Publicized Evidence of the Gupta’s Influence
____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

Part 2: KPMG SA’s Involvement with the Gupta Businesses

The Dairy Farm Scandal Involving the Gupta’s and KPMG SA
KPMG SA Audit Clients Lost and Clients Still Scrutinizing KPMG SA
Impact on South Africa’s Reputation from the Scandal
____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

Part 3: Investigations into KPMG SA’s Ethical Violations

IRBA - Independent Regulatory Board of Auditors
SAICA- South African Institute of Chartered Accountants
____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

Part 4: KPMG’s Renewed Commitment to Integrity and Quality

KPMG SA’s first Integrated Report and Specific Responses and Changes
____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

Part 5: Case Requirements

Video: The Gupta family wedding to be investigated
https://youtu.be/QrKtE5PUEBs
http://www.gupta-leaks.com/
 Table of Contents
Part 1: Guptagate – The Gupta Family Influence on Former President Jacob Zuma
Introduction
Publicized Evidence of the Gupta’s Influence
____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

Part 2: KPMG SA’s Involvement with the Gupta Businesses

The Dairy Farm Scandal Involving the Gupta’s and KPMG SA
KPMG SA Audit Clients Lost and Clients Still Scrutinizing KPMG SA
Impact on South Africa’s Reputation from the Scandal
____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

Part 3: Investigations into KPMG SA’s Ethical Violations

IRBA - Independent Regulatory Board of Auditors
SAICA- South African Institute of Chartered Accountants
____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

Part 4: KPMG’s Renewed Commitment to Integrity and Quality

KPMG SA’s first Integrated Report and Specific Responses and Changes
____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

Part 5: Case Requirements

Video: Inside the controversial Gupta Free State dairy farm
https://youtu.be/22iQlTAtSAc
 Table of Contents
Part 1: Guptagate – The Gupta Family Influence on Former President Jacob Zuma
Introduction
Publicized Evidence of the Gupta’s Influence
____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

Part 2: KPMG SA’s Involvement with the Gupta Businesses

The Dairy Farm Scandal Involving the Gupta’s and KPMG SA
KPMG SA Audit Clients Lost and Clients Still Scrutinizing KPMG SA
Impact on South Africa’s Reputation from the Scandal
____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

Part 3: Investigations into KPMG SA’s Ethical Violations

IRBA - Independent Regulatory Board of Auditors
SAICA- South African Institute of Chartered Accountants
____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

Part 4: KPMG’s Renewed Commitment to Integrity and Quality

KPMG SA’s first Integrated Report and Specific Responses and Changes
____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

Part 5: Case Requirements

Video: More companies threaten to cut ties with auditing firm KPMG
https://youtu.be/RUSuSMVdeVs
Video: KPMG faces potential client exodus
https://youtu.be/wP2OI3cPnYE
 Table of Contents
Part 1: Guptagate – The Gupta Family Influence on Former President Jacob Zuma
Introduction
Publicized Evidence of the Gupta’s Influence
____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

Part 2: KPMG SA’s Involvement with the Gupta Businesses

The Dairy Farm Scandal Involving the Gupta’s and KPMG SA
KPMG SA Audit Clients Lost and Clients Still Scrutinizing KPMG SA
Impact on South Africa’s Reputation from the Scandal
____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

Part 3: Investigations into KPMG SA’s Ethical Violations

IRBA - Independent Regulatory Board of Auditors
SAICA- South African Institute of Chartered Accountants
____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

Part 4: KPMG’s Renewed Commitment to Integrity and Quality

KPMG SA’s first Integrated Report and Specific Responses and Changes
____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

Part 5: Case Requirements

 Table of Contents
Part 1: Guptagate – The Gupta Family Influence on Former President Jacob Zuma
Introduction
Publicized Evidence of the Gupta’s Influence
____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

Part 2: KPMG SA’s Involvement with the Gupta Businesses

The Dairy Farm Scandal Involving the Gupta’s and KPMG SA
KPMG SA Audit Clients Lost and Clients Still Scrutinizing KPMG SA
Impact on South Africa’s Reputation from the Scandal
____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

Part 3: Investigations into KPMG SA’s Ethical Violations

IRBA - Independent Regulatory Board of Auditors
SAICA- South African Institute of Chartered Accountants
____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

Part 4: KPMG’s Renewed Commitment to Integrity and Quality

KPMG SA’s first Integrated Report and Specific Responses and Changes
____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

Part 5: Case Requirements

Video: IRBA says investigation into KPMG will be fast-tracked
https://youtu.be/KBCitbl1i44
The six charges related to improper conduct and tax evasion included the
following (International Accounting Bulletin 2019):
_________________________________________________________________
Charge 1: Gross negligence regarding the audit of Linkway for the year ending 28 February 2014

Charge 2: Lack of professional skepticism on the audit of Linkway – lack of identifying and responding to money
laundering red flags.

Charge 3: Dishonesty by changing financial statement to assist Linkway to evade tax.

Charge 4: Dishonesty to the IRBA relating to the restatement of the financial statement mentioned in charge 3

Charge 5: Failure to perform appropriate procedures on client continuance

Charge 6: Lack of independence (attendance of wedding) and incorrect audit opinion

 Table of Contents
Part 1: Guptagate – The Gupta Family Influence on Former President Jacob Zuma
Introduction
Publicized Evidence of the Gupta’s Influence
____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

Part 2: KPMG SA’s Involvement with the Gupta Businesses

The Dairy Farm Scandal Involving the Gupta’s and KPMG SA
KPMG SA Audit Clients Lost and Clients Still Scrutinizing KPMG SA
Impact on South Africa’s Reputation from the Scandal
____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

Part 3: Investigations into KPMG SA’s Ethical Violations

IRBA - Independent Regulatory Board of Auditors
SAICA- South African Institute of Chartered Accountants
____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

Part 4: KPMG’s Renewed Commitment to Integrity and Quality

KPMG SA’s first Integrated Report and Specific Responses and Changes
____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

Part 5: Case Requirements

 Table of Contents
Part 1: Guptagate – The Gupta Family Influence on Former President Jacob Zuma
Introduction
Publicized Evidence of the Gupta’s Influence
____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

Part 2: KPMG SA’s Involvement with the Gupta Businesses

The Dairy Farm Scandal Involving the Gupta’s and KPMG SA
KPMG SA Audit Clients Lost and Clients Still Scrutinizing KPMG SA
Impact on South Africa’s Reputation from the Scandal
____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

Part 3: Investigations into KPMG SA’s Ethical Violations

IRBA - Independent Regulatory Board of Auditors
SAICA- South African Institute of Chartered Accountants
____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

Part 4: KPMG’s Renewed Commitment to Integrity and Quality

KPMG SA’s first Integrated Report and Specific Responses and Changes
____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

Part 5: Case Requirements

 Table of Contents
Part 1: Guptagate – The Gupta Family Influence on Former President Jacob Zuma
Introduction
Publicized Evidence of the Gupta’s Influence
____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

Part 2: KPMG SA’s Involvement with the Gupta Businesses

The Dairy Farm Scandal Involving the Gupta’s and KPMG SA
KPMG SA Audit Clients Lost and Clients Still Scrutinizing KPMG SA
Impact on South Africa’s Reputation from the Scandal
____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

Part 3: Investigations into KPMG SA’s Ethical Violations

IRBA - Independent Regulatory Board of Auditors
SAICA- South African Institute of Chartered Accountants
____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

Part 4: KPMG’s Renewed Commitment to Integrity and Quality

KPMG SA’s first Integrated Report and Specific Responses and Changes
____________________________________________________________________________________________________________________________________________________________________________________________________________________________________________

Part 5: Case Requirements

 Part 5: Case Requirements (Issues addressed)
1. What does money laundering mean? Explain the case’s South African
money laundering scheme. What related failures in the audit occurred?

2. Importance of reputation and public trust to an accounting firm. What

steps were taken to restore public trust in the South African affiliate.

3. Discuss professional skepticism and its role in this situation. Identify red
flags that were in this situation.

4. Discuss the concept of auditor independence. Was the South African

auditor’s independence compromised?

5. Describe the legal structure of the global accounting firms. Why was this
model chosen?
 Part 5: Case Requirements (Issues addressed)
6. Discuss the meaning of “Client Acceptance and Continuance” as part of the
audit process, and what failures occurred regarding Gupta businesses.

7. What regulatory changes would help prevent auditors from being

facilitators of corrupt entities in the future?

8. Research another global accounting firm that encountered similar ethical

lapses in a foreign country.

9. What is the purpose of an integrated report? Why did the foreign affiliate
decide to start creating integrated reports? What is the value of such
reports to the future of the South African affiliate.
Evidence Regarding Case Efficacy
1. Student Survey: Pre- and Post-Case Questions

2. Student Questions: After Case Completion

3. Student Responses to Open-Ended Questions