Ernst & Young LLP admitted that many of its audit personnel cheated in the Certified Public Accountant exam in the ethics portion. It is known that the firm misled the investigation by US regulators probing the misconduct. The SEC fined a $100 million fine on EY, the largest penalty for an audit firm.
While there was a violation, the firm did not cooperate with the investigation. Around 50 EY audit employees have supposedly shared answer keys to the ethics portion. This applied to the CPA portion conducted between 2017-2021. In addition to this, hundreds of others cheated on various other professional education courses, according to SEC.
As the probe comes out, EY gives a statement that it is complying with the SEC’s settlement order. The company also announced that required steps are being taken to improve compliance. The firm said, “We are confident that the outcomes of the undertakings will reinforce steps we have already taken in the years since these situations occurred,”
Further added, “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.”
Actions by the firm
As the news comes out, the firm is investigating and taking disciplinary action. SEC said that despite being informed the company initially converted to the agency that it didn’t have a problem with cheating. The auditor failed to correct those statements and it led to further investigation.
It turns out that many EY employees have violated the company’s code of conduct. As the firm is taking action, some were fired as a result. It was because some still did it as they couldn’t pass on their own. The head of SEC’s enforcement division said in a statement, “It’s simply outrageous that the very professionals responsible for catching cheating by clients cheated on ethics exams. t’s equally shocking that Ernst & Young hindered our investigation of this misconduct.”
As of the action from SEC, in addition to the penalty, EY must also hire two separate consultants. These consultants will be responsible for examining ethics policies and other review disclosure failures. In recent years, the firm was also sued by Wall Street’s main regulator. Last year the firm paid $10 million penalties to the SEC as it violated auditor independence rules. In 2016, it was penalized $9 million to settle claims of inappropriate relationships with clients.
EY’s record SEC penalty follows a $50 million fine against KPMG LLP in 2019 for cheating on internal training exams, as well as for altering past audit work after receiving stolen information from an industry watchdog. KPMG also admitted wrongdoing in settling that case.