Ernst & Young, one of the world’s largest auditors, has found that US securities regulators have cheated on various ethical tests required for hundreds of auditors to obtain or maintain professional licenses. After discovering, I agreed to pay a fine of $ 100 million. It wasn’t enough to stop practicing.
The penalty, announced on Tuesday, is the largest penalty ever imposed by the Securities and Exchange Commission on auditing companies and occupies a unique ethical position in the financial industry. These companies are responsible for verifying the accuracy of their financial statements and alerting investors if they identify suspicious accounting practices.
Regulators said a large audit firm (also known as EY) misleaded investigators, withheld evidence, and violated public accounting rules designed to maintain professional integrity. ..
“It’s just ridiculous that an expert responsible for catching fraud by clients has cheated in an ethical test of everything,” Grubir S. Grewar, executive director of the committee, said in a statement of settlement. Said.
The penalty is Twice as much as KPMG, Another major audit company paid in 2019 to resolve an investigation of similar allegations of fraud by auditors in internal training exams. That summer, securities regulators sent a formal request to EY for information about any complaints the company might have received about an employee cheating on the exam.
On Tuesday, the SEC said EY received inside information about an employee cheating on a particular ethics test, but the company initially did not disclose it to investigators. Ultimately, when the regulatory and EY authorities conducted the investigation, it was a much broader issue of fraud.
According to the SEC, EY’s 49 auditors received an ethical exam “answer key” that was part of the first process of becoming a certified accountant. Separately, according to the Commission, hundreds of other employees of the auditing company have tricked ethical exams that need to be taken as part of a Continuing Education program. The state usually conducts such tests for accountants to hold a professional license. EY was unable to adequately deal with the fraud that occurred between 2017 and 2021, the SEC said.
Some employees told investigators that they had cheated because they “could not pass the training exam after a job commitment or multiple attempts,” according to a civil order from the SEC.
EY admitted in the order that the act was wrong. “Nothing is more important than our integrity and ethics,” the company said in a statement. “Sharing answers in assessments and exams violates our Code of Conduct and is unacceptable,” he said, stating that the company will step up efforts to strengthen compliance with the Code of Ethics.
With more than 300,000 employees, EY, along with Deloitte, KPMG and PwC, is one of the so-called Big Four accounting firms that audits the accounts of almost every large company in the world.
Regulators began scrutinizing the operations of accounting firms about 20 years ago. The collapse of Enron in 2001 spotlighted the role of auditor Arthur Andersen in helping the energy giant commit accounting fraud. Federal prosecutors later filed criminal charges against Arthur Andersen. The company no longer exists.
In the aftermath of the fraud of Enron and other large corporations, Congress passed a law establishing a public company accounting oversight committee. Although this committee is within the SEC, it takes its own enforcement action against the auditing firm. In an executive order against EY, the SEC stated that some of the company’s actions violated the rules of the board of directors.
Broadly speaking, one of the concerns of the SEC is the issue of auditor independence. Regulators want the accounting firm’s review of the company’s financial records not to be compromised by other consulting, advice, or lobbying activities that the accounting firm may provide to the company.
this month, Financial Times EY reported that it is considering splitting its auditing business from its financial advisory business.
Regulators said this was not the first case of widespread misconduct in ethical testing by EY employees. The SEC said there were some similar fraudulent scandals that the company handled internally between 2012 and 2015.
The SEC warned employees that EY had not cheated on trials in the past, but noted that it had not been adequately controlled until recently. As part of Tuesday’s settlement, EY will hire two independent consultants. One confirms the company’s policy on ethical procedures and the other confirms that it did not properly disclose fraudulent activity.
It is not uncommon for the SEC to require companies to appoint an external consultant to monitor compliance with the terms of the settlement. However, regulatory agencies rarely require the appointment of two consultants. This indicates that the SEC has considered these serious violations.
The SEC said the investigation is ongoing. This suggests that some individuals may be considering taking coercive measures.
“The settlement should serve as a clear message that the SEC does not tolerate failure of integrity by independent auditors,” Grewar said.