Ernest & Young, an audit, finance, and advisory firm in different areas, admitted that dozens of employees of its audit unit cheated on the ethics part of the CPA exam and that the firm also misled U.S. regulators investigating this malpractice, according to the Securities and Exchange Commission (SEC).
This is why the company will pay the largest fine ever imposed by U.S. authorities on an auditing firm, $100 million, the SEC announced last Tuesday—followed by a $50 million fine against KPMG LLP in 2019 for cheating on internal training exams, as well as altering past audit work after receiving stolen information from an industry watchdog. KPMG also admitted wrongdoing in settling that case.
EY in addition to violating accounting rules failed to cooperate with a vital part of the regulator’s investigation, the agency said.
Nearly 50 EY audit employees improperly shared answer keys to the ethics portion of the CPA exam between 2017 and 2021 and hundreds more cheated on continuing professional education courses, the SEC said.
EY said in a statement that it is complying with the SEC’s settlement order and will take additional steps to improve compliance.
“We are confident that the results of the engagements will reinforce the actions we have already taken in the years since these situations occurred,” the firm said. “Sharing the answers to any assessment or examination is a violation of our Code of Conduct and is not tolerated at EY. Our response to this unacceptable behavior in the past has been thorough, extensive, and effective.”
According to the SEC, despite being informed of possible dishonest behavior, the firm conveyed to the agency that it had no problem with cheating and that, the auditor failed to promptly correct those statements when it later launched an internal investigation.
Additionally, many EY employees knew that their behavior violated the firm’s code of conduct, but some continued to do it because they could not condone it themselves. In any event, the firm ended up disciplining and, in some cases, firing people for their actions, although the investigation is still ongoing.
In addition to the sanction, EY will be required to hire two separate consultants to review its ethics policies and another to review disclosure failures.
This is not the first time the firm has been fined, as in August 2021 it had to pay nearly $10 million to the SEC for violating auditor independence rules and in 2016, it was penalized $9 million to settle claims of improper client relationships.
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