Ernst & Young, one of the world’s largest audit firms, agreed to pay a $100 million fine after US securities regulators discovered that hundreds of its auditors had cheated on ethics tests they were required to take to obtain professional licenses – and that the company You don’t. Do enough to stop the practice.
The penalty, announced Tuesday, is the largest ever imposed by the Securities and Exchange Commission on an audit firm, whose business occupies a unique ethical position in the financial world. These companies are responsible for checking the accuracy of companies’ financial statements and issuing warnings to investors if they identify questionable accounting practices.
An administrative civil order filed by regulators said the large audit firm — also known as EY — misled investigators, withheld evidence and violated public accounting rules designed to preserve the integrity of the profession.
Grewal, the commission’s director of enforcement, in announcing the settlement, said, “It is simply disgraceful that the professionals responsible for controlling fraud by clients cheat ethics tests of everything.”
The punishment Double the amount of KPMGanother large audit firm, pushed in 2019 to dissolve an investigation into similar allegations of cheating by auditors in its internship exams.
Forty-nine EY auditors have been awarded the ‘Answer Key’ for the ethics exam that is part of the initial process for becoming a certified public accountant, according to the SEC. Administrative order. In some cases, employees shared answer keys even after the Securities and Exchange Commission fined KPMG.
Hundreds more at the audit firm have been cheated on ethics exams that are part of the continuing education programs that most states offer for accountants to retain their professional licenses, according to the commission.
Some employees told investigators they were cheated because of “work commitments or an inability to pass training exams after several attempts,” the order said.
EY admitted in the matter that her behavior was wrong. “Nothing is more important than our integrity and our ethics,” the company said in a statement. “Sharing answers to any assessment or test is a violation of our Code of Conduct and is not tolerated,” she said, and that the company would step up its efforts to enforce ethical compliance.
EY, with more than 300,000 employees, is one of the Big Four accounting firms – along with Deloitte, KPMG and PwC – that audit nearly all of the world’s largest companies.
Regulators began to take a closer look at the affairs of accounting firms about two decades ago. The collapse of Enron in 2001 Highlight the role of its auditor, Arthur Andersen, which helped commit accounting fraud at the energy giant. Later, federal prosecutors filed criminal charges against Arthur Andersen. The company no longer exists.
In the wake of the Enron fraud and other major corporate fraud, Congress passed a law to create the Public Company Accounting Oversight Board, which sits within the Securities and Exchange Commission but takes its own enforcement action against audit firms. In the administrative order against EY, the SEC said some of the company’s behavior violated board rules.
More broadly, one of the SEC’s areas of concern is the issue of auditor independence. Regulators want to ensure that the accounting firm’s review of the company’s financial records is not jeopardized by consulting, advisory or other pressure work it might do for the company.
This led many companies to split their accounting and consulting businesses, especially as the latter became a greater source of revenue for the Big Four. This month , financial times She stated that EY was considering separating its auditing business from its financial advisory business.
Regulators said this was not the first time that cheating on ethics exams by EY employees had become widespread. The SEC said a somewhat similar fraud scandal, which the company handled internally, occurred from 2012 to 2015.
In the order, the commission noted that EY had in the past sent warnings to employees about not cheating in exams, but had not put in place adequate controls until recently. As part of the settlement, EY will appoint independent advisors. One will review the company’s policies on ethical actions, and the other will review its failure to properly detect fraud.
It is not unusual for the Securities and Exchange Commission to require a company to appoint an outside advisor to monitor its compliance with the terms of a settlement. But it is rare for regulators to require the appointment of two advisers – a sign of how seriously the Securities and Exchange Commission is looking into abuses at EY.
The Securities and Exchange Commission said its investigation is ongoing, indicating that it may be considering enforcement action against some individuals.
Mr. Grewal said the settlement “should serve as a clear message that the SEC will not tolerate integrity failures by independent auditors”.