Tuesday June 28 2022
EY pays the largest SEC fine ever for staff cheating on CPA exams.
But read the article, EY knew about it and still did nothing.
The cheating was on, ironically, the required ethics exam.
Here is the WSJ comment
Ernst & Young agreed to pay a record $100 million fine and to admit that some of its auditors cheated on required ethics exams in recent years, according to a settlement order released on Tuesday.
The Securities and Exchange Commission said the penalty is the largest fine ever imposed on an audit firm, and stemmed partly from EY’s failure to report the scandal to regulators who had asked the firm about such misbehavior.
The case is the latest reputational setback for a profession entrusted with overseeing the reliability of public companies’ financial statements. KPMG LLP, another of the Big Four accounting firms, was fined $50 million in 2019 over ethical violations including claims that some auditors cheated on training exams.
“It’s simply outrageous that the very professionals responsible for catching cheating by clients cheated on ethics exams of all things,” said SEC Enforcement Director Gurbir Grewal. “And it’s equally shocking that Ernst & Young hindered our investigation of this misconduct.”
EY said that “nothing [at the firm] is more important than our integrity and our ethics.” It said the firm doesn’t tolerate cheating on exams, adding that its “response to this unacceptable past behavior has been thorough, extensive, and effective.”
The settlement could complicate an effort by the firm’s top leaders to split EY into separate auditing and consulting firms. The executives would have known about the SEC’s investigation as they planned for the possible breakup.
EY received a tip from an internal whistleblower in June 2019 that employees were cheating on ethics exams, which state accounting boards require as part of both initial and continuing license requirements, according to the SEC. The regulator had accused KPMG that same month of a massive ethics breach that included extensive cheating on continuing-education exams. It also accused several former KPMG partners of illicitly obtaining a secret list of their past audits that would be subject to surprise regulatory examinations.
Following up on the KPMG probe, the SEC asked EY in June 2019 about any reports the firm had received about testing misconduct. EY disclosed some past instances of cheating, but didn’t reveal the latest whistleblower report focused on ethics tests.
The firm’s response to the SEC was misleading because it implied EY “did not have any current issues with cheating,” the SEC wrote in the settlement order.
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