Wells Fargo: Did KPMG perform its duties? An auditing case about consumer fraud

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Abstract

This article describes the implementation of a case study that uses as its setting the role of KPMG in the Wells Fargo consumer fraud scandal as a way for students to learn about what can happen during an audit failure and what should be done to prevent audit failure. As the case details illustrate, it features the only recent significant Big 4 audit failure that is still being resolved, the audit failure includes many aspects of an auditor’s job, including some that typically are not covered in traditional course textbooks, and it highlights the auditor’s role within the broader context of corporate governance. This case study exposes students to several auditing standards and laws related to 1) consumer fraud; 2) contingent liabilities; 3) materiality; 4) illegal acts; 5) audit evidence; 6) audit opinions; 7) auditor independence and mandatory rotation; 8) auditor liability under the Securities Act of 1933; and 9) auditor liability under the Securities Exchange Act of 1934. The case was used in two undergraduate auditing classes and a graduate auditing class. Student opinion surveys were used to ascertain the learning outcomes of the case study. The survey results suggest strong student engagement and support for learning in groups while collaborating on the case study. The case results also show particularly strong knowledge enhancement with regard to understanding the auditor’s duty to disclose illegal acts, understanding consumer fraud, understanding audit evidence, understanding materiality, and understanding contingent liabilities.

Keywords: Illegal Acts, Consumer Fraud, Audit Evidence, Materiality, Contingent Liabilities, Auditor Regulation

Authors’ individual contribution: Conceptualization — R.D.F.; Methodology — R.D.F.; Investigation — R.D.F.; Writing — Original Draft – R.D.F.; Writing — Review & Editing — N.C.F. and N.H.; Supervision — R.D.F.

Declaration of conflicting interests: The Authors declare that there is no conflict of interest.

JEL Classification: M420, M480, K420

Received: 20.04.2021
Accepted: 18.02.2022
Published online: 22.02.2022

How to cite this paper: Feng, N. C., Fuerman, R. D., & Heron, N. (2022). Wells Fargo: Did KPMG perform its duties? An auditing case about consumer fraud. Corporate Ownership & Control, 19(2), 121–126. https://doi.org/10.22495/cocv19i2art10