Should auditors be held more accountable for their failure to blow the whistle on the years-long diesel emissions fraud perpetrated by Volkswagen?
Here is an excerpt from an article Daniel Jacobs and Lawrence Kalbers co-authored for The CPA Journal:
Knowing that the diesel vehicles would evade U.S. emissions standards, Volkswagen misrepresented them for years in order to get EPA and CARB certifications that allowed the vehicles to be sold in the U.S. When EPA and CARB finally began to catch on, Volkswagen equivocated until regulators threatened to withhold certification of its 2016 model year diesels. Once it became clear that its number was up, Volkswagen destroyed evidence of the fraud.
During the years it perpetrated this fraud, Volkswagen consistently portrayed itself as having an ethical culture, good corporate governance, effective risk management, and a strong commitment to sustainability. There is evidence to the contrary. .. Meanwhile, all three pillars of sustainability—economic, social, and environmental—collapsed under the diesel fraud, as costs mounted, stakeholders were alienated, and the air was polluted.
By the measure of the six capitals of integrated reporting—financial, manufactured, intellectual, human, social and relationship, and natural—that have gained favor in recent years, Volkswagen also suffered dearly . The diesel fraud exposed Volkswagen to huge tangible and intangible risks, and the consequences significantly depleted tangible financial capital (over $30 billion in costs, significant drop in stock price); social and relationship capital (diminished brand name and trust, damaged stakeholder relations), and natural capital (increased pollution, associated morbidity and mortality).
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Would society and stakeholders be better served by sustainability reports at higher levels of assurance that are designed to more fully inform stakeholder decisions? Could greater scrutiny, in the form of more proactive and comprehensive inspections and assessments by the sustainability report assurance firm, have detected the use of the defeat device, to the ultimate benefit of Volkswagen and its stake-holders? Would it have been beneficial to have different firms conduct the audits of the financial reports and sustainability reports, or did the use of the same firm actually provide a greater opportunity to discover the fraud? These questions and many others might be addressed more definitively with greater access to records that Volkswagen has yet to make publicly available.
