The Securities and Exchange Commission (SEC) announced on Tuesday that it has brought charges to Ernst & Young LLP (EY) for cheating on exams by its audit professionals who are required to obtain and maintain Certified Public Accountant (CPA) licenses.
EY has admitted to the charges and has agreed to pay a $100 million penalty and undertake extensive remedial measures. This is the largest penalty ever imposed by the regulator against an audit firm.
Gurbir S. Grewal, Director of the SEC’s Enforcement Division said:
This action involves breaches of trust by gatekeepers within the gatekeeper entrusted to audit many of our Nation’s public companies. It’s simply outrageous that the very professionals responsible for catching cheating by clients cheated on ethics exams of all things. And 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 who choose the easier wrong over the harder right.
According to SEC’s announcement, EY audit professionals cheated for a number of years on CPA exams and various continuing professional education courses required to maintain CPA licenses, including such designed to ensure that accountants can evaluate whether clients’ financial statements comply with generally accepted accounting principles.
Further, EY admits that during the Enforcement Division’s investigation into the firm, it stated that the firm had no current issues with cheating when, in fact, it had been informed of possible cheating on a CPA ethics exam. Moreover, EY did not correct its stance after it conducted an internal investigation and confirmed that cheating had occurred, and even after its lawyers spoke to senior management. SEC stated that EY did not cooperate in the its investigation regarding its misleading submission.
SEC’s order requires EY to pay $100 million penalty and to retain two separate independent consultants to help remediate its deficiencies.
Melissa R. Hodgman, Associate Director of the SEC’s Enforcement Division, added:
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 & 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.