The accounting firm Ernst & Young will have to pay a $100 million penalty after an investigation determined that employees had cheated on exams, the Securities and Exchange Commission announced.
According to AdvisorNews, the SEC said Ernst & Young (EY) admitted that a significant number of its audit professionals had cheated on the ethics component of Certified Public Accountant exams and various continuing professional education courses required to maintain CPA licenses. The firm also withheld evidence of the misconduct from the SEC’s Enforcement Division during the Division’s investigation, the commission said.
EY agreed to the penalty, the largest fine ever imposed by the SEC against an audit firm. It also said it would begin extensive remedial measures to correct the firm’s ethical deficiencies.
“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,” said Gurbir S. Grewal, Director of the SEC’s Enforcement Division. “And it’s equally shocking that Ernst & Young hindered our investigation of this misconduct.”
The SEC said that EY had contended during the investigation that it did not have issues with cheating though the firm had already been informed of potential cheating on a CPA exam. EY admitted it did not correct that claim even after its own internal investigation confirmed the cheating, and furthermore did not cooperate with the SEC’s investigation into the misleading information.
Ernst & Young was found to have violated a Public Company Accounting Oversight Board rule requiring the firm to maintain integrity in the performance of a professional service, committed acts discreditable to the accounting profession, and failed to maintain an appropriate system of quality control.
The SEC said it imposed the sanctions against the firm pursuant to Sections 4C(a)(2) and (a)(3) of the Exchange Act and Rules 102(e)(1)(ii) and (iii) of the Commission’s Rules of Practice.
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