Proceedings of The 14th International Conference on Management, Economics and Humanities
Year: 2023
DOI:
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Ernst & Young’s $100 Million SEC Penalty: A Case Study of Cheating on CPA Ethics Examinations and Cover-Up
Stephen Errol Blythe
ABSTRACT:
For almost ninety years, the U.S. Securities and Exchange Commission (SEC) has been monitoring the financial reporting practices of business firms that sell stock on public exchanges. The SEC requires Certified Public Accountants (CPAs) to audit those publicly-traded firms annually in order to provide reasonable assurance that the firms’ financial statements contain no material misstatements (due to error or fraud) and that the firms’ internal controls have no material weaknesses. Since CPAs serve as a watchdog for the SEC, the CPA exam content should be rigorous and the exam should be securely administered; this will help ensure that only qualified applicants become CPAs and that audits of publicly-traded firms are performed competently. Accordingly, the SEC was disappointed to learn that some of the auditors at Ernst & Young (E&Y), one of the four largest international CPA firms, had cheated on their CPA ethics examinations. Furthermore, E&Y management committed another violation by attempting to cover up the cheating; they withheld evidence from the SEC’s Enforcement Division during the investigation of the matter. E&Y admitted the facts underlying the SEC’s charges and agreed to pay a $100 Million penalty and undertake remedial measures to correct the firm’s ethical issues. The $100 Million fine assessed on June 28, 2022 was the largest penalty ever imposed by the SEC against a CPA firm.
keywords: CPA, cheating, examination, SEC, sanction