One of World’s Top Audit Firms Admits Employees had Cheated on Exams

Published: 04 July 2022

Ernst -Young ManhattanErnst & Young auditors have allegedly cheated on exams to obtain and maintain Certified Public Accountant (CPA) licenses. (Photo: Nick Bastian, Flickr, License)

By Zdravko Ljubas

One of the world’s major audit firms admitted its auditors had cheated on exams and agreed to settle the affair with U.S. authorities for US$100 million.

The U.S. Securities and Exchange Commission (SEC) charged Ernst & Young LLP for “cheating by its audit professionals on exams required to obtain and maintain Certified Public Accountant (CPA) licenses, and for withholding evidence of this misconduct from the SEC’s Enforcement Division during the Division’s investigation of the matter,” the U.S. government agency in charge of the nation’s securities industry, said in a statement on Tuesday.

Ernst & Young LLP is one of the world’s leading firm offering audit, tax, business risk, technology and security risk, and human capital services.

“It’s simply outrageous that the very professionals responsible for catching cheating by clients cheated on ethics exams of all things,” Director of the SEC’s Enforcement Division, Gurbir S. Grewal said.

The company conceded the facts behind the SEC’s accusations and agreed to pay the penalty.

Ernst & Young admitted that, over multiple years, a significant number of its audit professionals cheated on the ethics component of CPA exams and various continuing professional education courses required to maintain CPA licenses, including ones designed to ensure that accountants can properly evaluate whether clients’ financial statements comply with Generally Accepted Accounting Principles, according to the SEC.

The firm also admitted that, during the Enforcement Division’s investigation of potential cheating at the firm, Ernst & Young made a submission to the Division claiming that the firm had no current issues with cheating when, in fact, the firm had been informed of potential cheating on a CPA ethics exam.

Ernst & Young further admitted that it did not alter its submission even after conducting an internal investigation into cheating on CPA ethics and other exams and after concluding that there had been cheating, and even after discussing the problem with members of the firm’s senior management.

The SEC also claimed that Ernst & Young “did not cooperate in the SEC’s investigation regarding its materially misleading submission.”

Following the SEC findings, in addition to paying a $100 million penalty, Ernst & Young was ordered “to engage in extensive undertakings, including retaining two separate independent consultants to help remediate its deficiencies.”

One consultant will examine the firm’s ethics and integrity standards and processes, while the other will examine Ernst & Young’s actions related to its disclosure failings, including if any of its employees contributed to the firm’s failure to revise its inaccurate statement, according to the SEC.

Ernst & Young said it will undertake extensive corrective efforts to rectify the firm’s ethical deficiencies, read the statement.