SEC slams EY with record $100-million fine for cheating on CPA exams
The US Securities and Exchange Commission (SEC) last Tuesday fined EY US $100 million for cheating by its audit professionals on CPA exams and for withholding evidence of misconduct from the watchdog’s investigators.
According to the SEC, nearly 50 EY audit employees shared answer keys to the ethics portion of the CPA exam between 2017 and 2021, while hundreds more cheated on continuing professional education courses required to maintain CPA licenses.
After being informed of the SEC’s investigation into potential cheating, EY told the watchdog it didn’t have any current issues with cheating and failed to correct its submission when the accountancy’s internal investigation confirmed there had been cheating.
“It’s simply outrageous that the very professionals responsible for catching cheating by clients cheated on ethics exams of all things,” said Gurbir Grewal, director of the SEC’s enforcement division. “And it’s equally shocking that Ernst & Young hindered our investigation of this misconduct. This action should serve as a clear message that the SEC will not tolerate integrity failures by independent auditors who choose the easier wrong over the harder right.”
The SEC announcement notes that EY admits the facts underlying the Wall Street regulator’s charges, agrees to pay the largest-ever SEC fine for an auditor, and will take additional remedial measures to fix its ethical issues. This includes retaining two separate independent consultants to remediate deficiencies, with one reviewing ethics policies and procedures and the other reviewing EY’s conduct in its disclosure failures.
“We are confident that the outcomes of the undertakings will reinforce steps we have already taken in the years since these situations occurred,” EY said in statement. “Sharing answers on any assessment or exam is a violation of our Code of Conduct and is not tolerated at EY. Our response to this unacceptable past behavior has been thorough, extensive, and effective.”
The SEC in August fined EY $10 million for violating auditor independence rules and in 2016 fined the Big Four accountancy $9 million over inappropriate relationships with clients.
Rumblings about an upcoming split of EY’s global audit and consulting businesses are attributed to increasing regulatory scrutiny by the SEC and other watchdogs, especially around conflicts of interest and independence.
Rival firm KPMG was in 2019 fined $50 million by the SEC for cheating on internal training tests and altering previous audit work after receiving stolen information from an industry watchdog group.
PwC Canada was earlier this year fined US$750,000 by the US Public Company Accounting Oversight Board (PCAOB) and $200,000 by the Canadian Public Accountability Board (CPAB) after 1,200 employees were caught cheating on internal tests. At first glance, accounting industry watchdogs are noticeably more lenient and Canada lacks an SEC equivalent. Additionally, PwC uncovered and reported the cheating to regulatory bodies rather than obstructing the investigation.
