The Inevitable Corruption of Audit – From KPMG to Northern Rock, and Why Socialism is the Only Cure

by Ted Carter

The resignations at KPMG Australia in mid-2026 ⎯ chief executive, chairman, chief operating officer, audit and assurance managing partner, and a senior audit partner, are not rogue departures.¹ They are the system vomiting up its own logic. This is not a few bad apples. This is a rotten orchard. Under capitalism, the audit profession does not accidentally collapse into fraud. It is structurally propelled there. The profit motive is fundamentally incompatible with fiduciary duty, professional scepticism, and the public good. The scandals are not aberrations; they are the normal functioning of capital.

The Evidence: A Pattern, Not a Coincidence

Let us start with KPMG and Lendlease. KPMG is one of the “Big Four”² accounting firms, a global behemoth whose ostensible purpose is to provide independent, rigorous verification of corporate financial statements. Lendlease, by contrast, is not a financial institution or a consultancy. It is a global real estate and infrastructure company that builds hospitals, stadiums, and residential towers. The two are linked by a 68-year audit relationship ⎯ a tenure that should signify deep trust in KPMG’s professional scepticism and discretion.

But here is the structural contradiction: the Big Four are no longer pure audit firms. They have leveraged their privileged access to corporate balance sheets into sprawling consulting empires, selling tax advice, deal advisory, and strategic counsel to the very clients they are meant to scrutinise. The audit, originally conceived as a dispassionate diagnostic tool for the public good, has been degraded into a loss-leading sales pitch, a foot in the door to sell far more lucrative non-audit services. Independence gives way to client capture. Professional scepticism gives way to commercial opportunism. The very essence of the auditor’s job, to hold power to account, is subordinated to the imperative of winning business at any cost.

That brings us to the breach. In May 2024 an internal KPMG whistleblower came forward to raise allegations that at least senior partners were involved in leaking confidential Lendlease and Optus information to assist KPMG win lucrative audit contracts at Westpac, Dexus and Telstra. KPMG’s internal investigation dismissed the claims and instead the whistleblower faced punitive retribution.³ The misconduct only came to light after the whistleblowers testimony was read out by Senator Deborah O’Neillunder parliamentary privilege in a speech on 24 March this year.⁴ Three independent directors had to intervene to force the firm to reopen the matter. One, former NSW premier Mike Baird, resigned after management assured him the claims had no substance, assurances that proved false. Another independent director was either misled or complicit. Only external legal pressure and parliamentary exposure forced a belated admission of wrongdoing. The firm’s subsequent governance overhaul, an independent chair, a review of whistleblowing systems, merely treats symptoms. The disease is untouched.

Now rewind to 2008. The global financial crisis was not a natural disaster. The audit firms were active participants. They earned enormous consulting fees advising the very banks they were meant to scrutinise, helping package toxic sub-prime debt into superficially investment-grade securities. The UK Treasury Select Committee’s 2008 inquiry into Northern Rock plc documented the contradiction in pounds and pence: PricewaterhouseCoopers (PwC) earned £1.3 million in consulting fees for the same entity it audited for £500,000.⁵ An adverse audit opinion threatened three pounds of revenue for every one pound of audit fee it might have protected. That is not a moral failing of individuals. That is a structural imperative. Capital must accumulate. Truth, professional standards, and the safety of the global financial system are merely obstacles to be swept aside. The result: millions of livelihoods destroyed, families evicted, a decade of austerity imposed on working people, while bankers and their auditors walked away with bonuses.

The same logic gutted Enron and killed Arthur Andersen in the early 2000s.⁶ That scandal exposed the fatal conflict between audit independence and lucrative consulting, prompting the US Sarbanes-Oxley Act and Australia’s CLERP 9 reforms.⁷ These were supposed to separate audit from consulting and restore integrity. Yet the KPMG and PwC scandals of the 2020s prove that bourgeois law cannot resolve a contradiction intrinsic to capital itself. The reforms merely pushed consulting into adjacent areas. The structural dependency of audit firms on non-audit revenue remained untouched.

Consider the PwC tax scandal in Australia.⁸ The state hired PwC to consult on new tax laws. PwC then turned around and sold that confidential information to its private clients, showing them exactly how to evade the taxes the state was trying to collect. This is not a breach of trust. This is the normal functioning of capital when it encounters the state.

But why does the state tolerate – indeed, license – such behaviour? The answer lies in capital’s structural stranglehold over the state. The state relies on private markets for its own survival: it needs corporate tax receipts to fund its budgets, private investment to buy its bonds, and business “confidence” to maintain its credit rating. To inflict a genuinely crippling penalty on PwC – say, revoking its license to operate or imposing fines that would actually threaten its partnership capital, would send a shockwave through the entire financial services sector, triggering capital flight and a crisis of confidence that would harm the state’s own fiscal position. The state is a hostage to the very markets it purports to regulate.

Add to this the revolving door. The very regulators and Treasury officials who oversee PwC are products of the same professional class; they attend the same conferences, read the same journals, and, crucially, anticipate their own lucrative post-retirement careers in the private sector. Their material interests do not lie in exposing systemic rot. They lie in managing it quietly. As Marx and Engels put it, the state under capitalism is merely a committee for managing the common affairs of the bourgeoisie, and committees do not vote to dissolve themselves.

The Senate committee exposed KPMG and PwC. But such parliamentary actions are always reactive, limited, and ultimately insufficient. They provide a theatrical spectacle of accountability without threatening the underlying structure. The penalty imposed on PwC, a temporary ban from government contracts and the forced sale of a division for one dollar, was a theatrical slap on the wrist. The real penalty would have been a loss of profits, a genuine erosion of the partners’ personal wealth. That is something the system cannot digest. And because it cannot digest a genuine loss of profitability, it does the only thing it can: it forces a few high-profile resignations, rewrites a few internal policies, and returns to business as usual, leaving the poison coursing through its veins.

Now examine the cheating on ethics exams. Partners, the most senior professionals, were caught using AI to cheat on exams designed to test their knowledge of professional ethics.⁹ Across Deloitte, EY, and KPMG, hundreds engaged in this behaviour. This is not individual dishonesty. It is a systemic response to the pressure to bill hours, win clients, and maximise partnership distributions. Ethics becomes a box-ticking exercise, a bureaucratic nuisance to be gamed. The exam is not a test of character; it is a compliance ritual that must be passed by any means necessary so the profit-making machine can continue.

The statistics confirm this is a permanent condition, not a temporary dip. In August 2023, the US Public Company Accounting Oversight Board (PCAOB) found that six in ten audits were flawed.¹⁰ In Australia, the Australian Securities and Investments Commission (ASIC) found that up to 40% of audits reviewed in 2022 were called into question,¹¹ with Deloitte and KPMG suffering a drastic decline in quality.¹² When regulators on both sides of the Pacific find that a large proportion audits do not meet professional standards, they are documenting the objective failure of a system that pretends to provide independent verification but actually provides a veneer of legitimacy to corporate fraud. The purpose of the audit under capitalism is not to protect workers, pensioners, or the public. It is to reassure investors that the balance sheet is sufficiently plausible to maintain share prices and credit ratings. If the audit were genuinely independent, it would threaten the entire edifice of financialised capital. Therefore, it must be watered down, captured, and rendered ineffective.

The Harnecker Framework: Why This Happens on Loop

Why does this cycle repeat with mechanical predictability? Marta Harnecker’s marxist framework outlined in her 1969 “Elementary Concepts of Historical Materialism” book provides the scalpel. Harnecker argues that the economic base, the real relations of production, defined under capitalism by private ownership and the relentless drive for profit, is ultimately determinant. It sets the objective for every institution that sits above it.

That superstructure is divided into two levels. First, the legal-political superstructure: the state, the courts, the regulators. These are not neutral arbiters. They are instruments of the ruling class, structurally dependent on capital for tax revenue, investment, and legitimacy. That is why the Australian Securities and Investments Commission (ASIC) and the Public Company Accounting Oversight Board (PCAOB) are underfunded. That is why investigations are delayed. That is why PwC received a slap on the wrist. The state cannot truly punish capital without jeopardising the system it is sworn to protect. The legal reforms, Sarbanes-Oxley, CLERP 9, tinker at the edges precisely because they cannot abolish the profit motive that generates the conflict.

The Treasury itself describes CLERP 9 as built on “market freedom, investor protection… flexible law… clear guidance… and effective enforcement.” Read that line again. It is the superstructure’s official alibi. The state presents itself as the guardian of transparency and fairness.

But Harnecker would call this pure legal ideology. The law claims to enforce standards, yet its “flexibility” is not a virtue, it is a loophole. Because the state is structurally dependent on capital, it cannot write a law that abolishes the profit motive. It can only write laws that manage the contradiction. And so, “effective enforcement” in practice means a slap on the wrist for PwC. “Investor protection” in practice means signing off on toxic sub-prime debt. “Clear guidance” in practice means an ethics exam that partners cheat on with AI.

The Treasury’s words are not a description of reality. They are a ritual incantation. The material reality, regulators finding six in ten audits flawed, Parliament exposing Northern Rock’s £1.5m consulting fee versus a £500k audit fee – tells the real story. Under capitalism, the legal superstructure does not correct the base. It consecrates a religion of exploitative economy that recognises profit as its only virtue ⎯ and in doing so, actively contorts the base to serve that altar.

Second, the ideological superstructure: education, media, professional training. This is the factory of consent. It manufactures the “common sense” that profit is the sole measure of success, that winning at all costs is virtuous. Inside KPMG, leaking confidential papers is not corruption; it is “commercial acumen.” The ethics exam is hollowed out, reduced to a technical obstacle to be cheated on, because the real religion of the firm is revenue. Ethics becomes alienated from human practice, a commodity rather than a conviction.

Crucially, Harnecker insists on the reciprocal action of the superstructure back upon the base. This corruption is not passive. It boomerangs. By destroying trust in financial statements, it deepens capitalism’s fundamental contradiction, socialised production versus private appropriation, and in doing so, it actively exacerbates the material living conditions of the working class. Tax evasion and false balance sheets do not merely enrich the few; they directly transfer wealth from workers to the capitalist class, starving public services, suppressing wages, and eroding the security of pensions.

This is where the superstructure’s reciprocal action becomes a catalyst for consciousness: the worker who loses their retirement savings, the small investor defrauded, the employee who watches their boss cheat on ethics exams while preaching compliance, they do not just suffer in isolation. They witness, in brutal and concrete terms, how the corruption of the owning class negatively ramifies their own lives. And crucially, they are capable of tracing that harm back to its source: a system that enshrines profit as its highest virtue. That act of tracing, of recognising that their deteriorating conditions are not accidental, not the result of individual bad apples, but the normal functioning of a predatory system, transforms lived experience into class consciousness. For Harnecker, this is not passive despair. It is a corrective strategy: the first, indispensable step towards collective action and systemic transformation. The corruption of the superstructure, by worsening life at the base, inadvertently forges the very consciousness that will one day dismantle it.

The Revolutionary Alternative: Not Reform, but Rupture

KPMG’s governance overhaul, an independent chair, a review of whistleblowing, addresses symptoms, not causes. The only genuine solution is a fundamental restructuring of the relationship between audit, consulting, and the state.

What would a real alternative look like?

First, sever the conflict at the root. The audit function must be separated entirely from consulting, not merely within firms, but as a matter of social ownership. Audit firms would cease to be private partnerships competing for profit. They would become public bodies, staffed by professionally qualified accountants and funded by the state. Their sole mandate: to verify enterprise accounts for the benefit of the people. Auditors would be paid a fixed salary, like teachers or judges, with career progression dependent on accuracy, thoroughness, and independence, not on clients brought in or side contracts sold. There would be no consulting fees to chase, no management to curry favour with.

Second, enforce criminal penalties. A partner who facilitates tax evasion or conceals financial losses would face imprisonment and the forfeiture of all personal assets accumulated through the fraud. Under capitalism, the worst that happens is a resignation with a million-dollar payout. Under socialism, such actions would be treated as theft from the public, because that is exactly what they are.

Third, put workers on the oversight councils. The accounts of all large enterprises would be open to public inspection and subject to oversight by worker councils. Workers have a direct, material interest in the financial health of their enterprises. They are far less likely to tolerate accounting fraud than distant shareholders who only care about quarterly returns. Democratic oversight at the workplace level provides a layer of scrutiny no private audit firm can replicate. Workers know the reality of production. They can spot discrepancies between the books and the shop floor.

Fourth, reframe the goal of economic activity. Under capitalism, profit is the sole measure of success, so the audit is designed to verify profit figures. Under socialism, the goal is the satisfaction of human needs. The audit would be designed to measure efficiency, ecological sustainability, and social utility. It would ask not whether the numbers add up, but whether the enterprise is contributing to the well-being of the community. This reframing would criminalise the absurdity of auditing firms helping banks package sub-prime debt or advising corporations on tax avoidance, not because they break a technical rule, but because they harm society.

The Defenders Will Call This Unrealistic

They always do. But the scandals of the past two decades have demonstrated that the current system is the one that is inefficient and destructive. It has produced financial collapses, mass unemployment, growing inequality, and a catastrophic erosion of public trust. The system cannot reform itself, because the profit motive is not an external add-on but the central organising principle of the whole edifice. You cannot have capitalist auditors and expect honest audits. You cannot have private consulting firms advising on tax law and expect them not to use that knowledge for private gain. You cannot have partners compensated based on revenue and expect them to prioritise professional scepticism. The contradictions are internal and irreconcilable.

The Antidote

The resignations at KPMG today are a small symptom of a much larger disease. The disease is capitalism. The antidote is the collective ownership and democratic control of the economy by the working class. Only when the audit is a public service, not a profit centre, can we begin to restore the trust that has been so thoroughly destroyed. Only when the goal of production is human welfare, not private accumulation, can we eliminate the incentives that turn professional integrity into a commodity to be traded. The working class has nothing to lose but the chains of its own exploitation, and it has a world to gain. That world includes honest accounts, transparent institutions, and a financial system that serves people, not predators. The path is clear. The question is whether we have the courage to take it.

References
Australian Senate KPMG Ethics and Accountability Hearing 19^th June 2026 – The hearing can also be watched on Youtube here

Marta Harnecker, The Elementary Concepts of Historical Materialism. Publisher: Siglo Veintiuno Editores, S.A.. Year of publication: 1978.

PCAOB “Spotlight Report on Auditor Independence” (September 2024)

PCAOB Fines PwC $2.75 Million for Quality Control Violations Relating to Independence(2024)

UK Parliament Select Committee on Treasury Fifth Report (2008)

Australian Parliamentary Joint Committee on Corporations and Financial Services Final Report (2024)

Footnotes