In the largest penalty ever imposed by the Securities and Exchange Commission against an audit firm, Ernst & Young must pay $100 million and undertake “extensive remedial measures to fix the firm’s ethical issues” to resolve charges that its audit professionals cheated on exams required to obtain and maintain Certified Public Accountant (CPA) licenses, the SEC announced Tuesday.
The SEC also charged EY with withholding evidence of this misconduct from the SEC’s Enforcement Division during its investigation of the cheating scandal.
EY admitted that, over multiple years, “a significant number of EY 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,” the SEC stated.
An EY spokesperson told NPR that EY was taking extensive actions to address the cheating scandal. “At EY, nothing is more important than our integrity and our ethics. These core values are at the forefront of everything we do,” Brendan Mullin, a spokesperson for Ernst & Young, said in an email to NPR. “Our response to this unacceptable past behavior has been thorough, extensive, and effective.”
EY further admitted that it made a submission conveying to the Enforcement Division that it didn’t have issues with cheating “when, in fact, the firm had been informed of potential cheating on a CPA ethics exam,” the SEC stated. EY further admitted it didn’t correct its submission even after beginning an internal investigation.
Nor did EY cooperate in the SEC’s investigation regarding its materially misleading submission, the SEC stated. “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,” stated SEC Enforcement Division Director Gurbir Grewal. “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.”
Remediation Requirements
In addition to paying a $100 million penalty, EY must retain two separate independent consultants to help remediate its deficiencies. “One consultant will review the firm’s policies and procedures relating to ethics and integrity,” the SEC stated. “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 SEC order also found EY “violated a 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.” 
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Jaclyn Jaeger is a contributing editor at Compliance Chief 360° and a freelance business writer based in Manchester, New Hampshire.