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SEC fines EY $100 million for cheating by auditors

·Senior Reporter
·3 min read

The Securities and Exchange Commission is charging Big Four accounting firm EY with a $100 million fine for cheating by its auditors on exams required to obtain Certified Public Accountant (CPA) licenses, and for hiding that from the SEC during its investigation of the firm.

The accounting firm admits that over multiple years, hundreds of auditors cheated on the ethics portion of CPA exams and continuing education courses required to maintain CPA licenses, including those that ensure accountants can evaluate whether clients’ financial statements comply with Generally Accepted Accounting Principles.

From 2017 to 2021, nearly 50 EY auditors in multiple offices cheated on these ethics exams by using answer keys when taking their own exams, or by sending colleagues answer keys for them to use, according to the SEC.

EY employees cheated on these ethics exams even after having been warned repeatedly not to cheat. Hundreds of EY auditors also cheated on exams required to maintain their CPA licenses, and hundreds more help their colleagues cheat by sharing answer keys.

Pedestrians walk past the offices of accounting and auditing firm EY, formerly Ernst & Young, in London on November 20, 2020. - Britain's audit sector, dominated by the so-called Big Four accountancy giants, is shortly expected to discover how it must reinvent itself amid a series of probes into alleged corruption, including one linked to the collapse of German electronic payments group Wirecard. The Department for Business, Energy and Industrial Strategy (BEIS) is reportedly set to publish reform proposals before Christmas amid fraudulent probes into EY-linked activities at Denmark's Danske Bank and Wirecard. EY has been accused of failing to warn about suspicious transactions at Danish bank Danske Bank worth billions of euros. (Photo by TOLGA AKMEN / AFP) (Photo by TOLGA AKMEN/AFP via Getty Images)
Pedestrians walk past the offices of accounting and auditing firm EY, formerly Ernst & Young, in London on November 20, 2020. (Photo by TOLGA AKMEN/AFP via Getty Images)

EY — who along with PwC, KPMG, and Deloitte constitute the "Big Four" accounting firms — counts Amazon (AMZN), Alphabet (GOOGL), Coca-Cola (KO), and Apple (AAPL) among its public-market clients.

According to the SEC, EY has a history of employees cheating on exams. From 2012 to 2015, over 200 auditors cheated on training exams by exploiting a flaw in software.

Even after the firm took action against those employees, the firm continued to find incidences of cheating, according to the SEC. Most states require accountants who want to be licensed as CPAs to pass ethics exams, which are designed to ensure CPAs understand their ethical responsibilities.

EY also admits that during the SEC’s investigation that the company denied issues with cheating even though the firm had been tipped off by lawyers about cheating on a CPA ethics exam. The accounting firm did not inform the SEC of its mistake even though it launched its own internal investigation into cheating on CPA ethics exams and other exams.

“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. “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.”

In addition to paying a $100 million penalty, the largest penalty ever imposed against an audit firm, the SEC is requiring EY to retain two separate independent consultants to review the firm’s ethics policies and its failure to disclose wrongful information.

The SEC is continuing its investigation into EY and is likely to bring allegations against individuals at the accounting firm as well.

This comes after the SEC charged another large audit firm, KPMG, in 2019 for its auditors cheating on exams.

Jennifer Schonberger covers cryptocurrencies and policy for Yahoo Finance. Follow her at @Jenniferisms.

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