Ernst & Young (EY), has been penalised by the US securities and exchange commission (SEC) for $100 million.
It has been found that audit professionals at EY were cheating in exams required to obtain and maintain Certified Public Accountant (CPA) licenses, and EY knew about these ethical issues in the CPA exams. The US Securities has now held EY responsible for that.
SEC has said that EY had withheld evidence of cheating in the exams. It is also found that audit professionals cheated in 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.
“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,” says Gurbir S. Grewal, director, SEC’s Enforcement Division.
“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,” he adds.
EY has admitted that its audit professionals were involved in breaching the ethical code in CPA exams and the company has also agreed that during an internal investigation, a potential case of cheating in CPA exams by its employees came to light, but the company did not take make the effort to do a course correct in its submission to SEC.
Even some of the senior advocates at EY had informed about this misconduct in the company to the senior management, but no action was taken.
EY further admits that it did not cooperate with the SEC during the investigation regarding its materially misleading submission.
Apart from the $100 million monetary fine on EY, the order also says that the company will have to appoint two independent consultants who will review and suggest remedies for the shortcomings in the company.
One consultant will look into the policies and procedures relating to ethics and integrity at EY. The other will review EY’s conduct regarding its disclosure failures, including whether any EY employees contributed to the firm’s failure to correct its misleading submission. The order has found EY of violating Public Company Accounting Oversight Board (PCAOB) 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 company has been penalised under 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.
“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,” shares Melissa R. Hodgman, associate director, SEC’s Enforcement Division.
Hodgman adds, “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.”
The SEC’s investigation, which is continuing, has been conducted by Ian Rupell and supervised by Rami Sibay.