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Accounting giant Ernst & Young admits employees cheated on ethics exams

Sean Gallup


28.06.22 06:00

Ernst & Young, one of the world’s largest accounting firms, is fined $100 million by federal regulators after admitting its employees cheated on their ethics exams.

For years, the company’s auditors had cheated to pass key exams needed for CPA licenses, the Securities and Exchange Commission found. Ernst & Young also had internal reports of the cheating, but did not disclose the wrongdoing to regulators during the investigation.

“It is simply outrageous that the very professionals tasked with catching cheating by clients have cheated on ethics reviews of all things,” said Gurbir S. Grewal, director of the SEC’s enforcement division, in a press release.

The fine is the heaviest sanction ever imposed by the SEC on an audit firm.

CPA, or Certified Public Accountant, licenses are necessary for auditors to assess companies’ financial statements and ensure that they comply with the laws.

However, the SEC says a “significant number” of Ernst & Young audit professionals specifically cheated on the ethics component of CPA exams that were required for their accounting jobs.

Audit firms play an essential role in controlling access to financial markets and their job is to guarantee the integrity of the financial information provided by companies. This is why the independence and integrity of these companies are paramount.

Because it’s their job to hold others accountable, Ernst & Young – one of the “big four” accounting firms – says it holds itself to a high standard of ethics. In fact, the company’s entire global code of conduct is based on an “ethics” framework.

Many employees interviewed during the federal investigation said they knew cheating was a violation of the company’s code of conduct, but did it anyway because of work commitments or because they could not pass the training exams after several tries.

The SEC said the cheating spanned many years, dating back to 2012. Following the discovery of an earlier cheating scheme, the firm took disciplinary action and repeatedly warned its audit professionals not to not cheat on exams. Yet the cheating continued.

In addition to paying the $100 million fine, Ernst & Young must self-audit and report findings to the SEC, including an evaluation of its ethics and integrity training. It will also be reviewed by independent consultants that the company will have to pay for.

The cheating scandal comes just weeks after the Financial Times reported that Ernst & Young was planning to split its auditing and consulting arms, a huge shake-up in the accounting world that would award its partners up to $8 million in stock each.

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