Big Four

EY to pay $100m fine over US ethics exam cheating

The SEC announced that EY would pay the largest ever penalty for an audit firm. In addition to violating accounting rules.

‘Big Four’ accounting firm Ernst and Young’s (EY) US arm has agreed to pay a record $100m (£81.8m) fine to US regulators amid charges that dozens of its audit staff cheated on an ethics exam and misled investigators, ​the Securities and Exchange Commission (SEC) has revealed.

The SEC said that EY admits that over multiple years a number of EY audit professionals cheated on the ethics component of CPA exams and professional education courses required to maintain CPA licences, including ones designed to ensure that accountants can properly evaluate whether clients’ financial statements comply with Generally Accepted Accounting Principles.

The regulator also revealed that EY  admits that it did not correct its submission even after it launched an internal investigation into cheating on CPA ethics and other exams and confirmed there had been cheating, and even after its senior lawyers discussed the matter with members of the firm’s senior management. 

The SEC Order also deemed that EY did not cooperate in the SEC’s investigation regarding its materially misleading submission.

Melissa R. Hodgman, associate director of the SEC’s Enforcement Division, said: “The SEC will not permit the submission of misleading information or any action that delays or frustrates our mandate to protect investors and our markets

“Ernst and Young faces significant sanctions and extensive remediation to ensure that its culture and conduct meet the ethical standards required of those responsible for the integrity of our capital markets.”

In addition to paying the penalty, the Order requires EY to engage in “extensive undertakings”, including retaining two separate independent consultants to help remediate its deficiencies. One consultant will review the firm’s policies and procedures relating to ethics and integrity. The other will review EY’s conduct regarding its disclosure failures.

In a statement to the Guardian, EY said: “Nothing is more important than our integrity and our ethics.” The firm said it was complying with the SEC’s order and had taken steps to address compliance issues.

“We are confident that the outcomes of the undertakings will reinforce steps we have already taken in the years since these situations occurred.”

EY 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 behaviour has been thorough, extensive, and effective.”

Accountancy Today has contacted EY for comment.

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