US SEC Imposes a $100 Million Penalty on Ernst & Young

Wednesday, 29/06/2022 | 01:13 GMT by Felipe Erazo

It's the largest ever fine imposed by the authority against an audit firm.

EY should hire two independent consultants as part of the measures taken by the SEC.

The US Securities and Exchange Commission (SEC) announced on Tuesday that it had charged Ernst & Young LLP (EY) for cheating on exams by its audit professionals who are required to obtain and maintain Certified Public Accountant (CPA) licenses.

In response to the SEC’s charges, EY admitted the facts and agreed to pay a $100 million penalty and undertake extensive remedial measures, becoming the largest penalty ever imposed by the watchdog against an audit firm.

According to the press release, a significant number of audit professionals cheated for multiple years on the ethics component of the CPA exams and various continuing professional education courses required to maintain CPA licenses, including those 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 of potential cheating at the firm, it conveyed to the Division that the firm had no current issues with cheating when, in fact, it had been informed of possible cheating on a CPA ethics exam. Even after conducting an internal investigation into CPA ethics and other exams confirming that cheating had occurred, and even after speaking personally to senior management, EY did not correct its submission.

Additional Measures Taken

As part of the order, EY must pay a $100 million penalty and hire two independent consultants to help remedy its 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. 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,” Gurbir S. Grewal, theDirector of the SEC’s Enforcement Division, commented.