Accounting giant Ernst & Young admits its employees cheated on ethics exams

NPR ^ | JACQUELINE GANUN

[BenLurkin]

Ernst & Young, one of the top accounting firms in the world, is being fined $100 million by federal regulators after admitting its employees cheated on their ethics exams.

For years, the firm's auditors had cheated to pass key exams that are needed for certified public accountant licenses, the Securities and Exchange Commission found. Ernst & Young also had internal reports about the cheating but didn't disclose the wrongdoing to regulators during the investigation.

"It's simply outrageous that the very professionals responsible for catching cheating by clients cheated on ethics exams of all things," Gurbir S. Grewal, director of the SEC's Enforcement Division, said in a release.

The fine is the largest penalty ever imposed by the SEC on an audit firm.

The CPA, or certified public accountant, licenses are needed by auditors to evaluate the financial statements of companies and ensure they are complying with laws.

However, the SEC says that a "significant number" of Ernst & Young audit professionals specifically cheated on the ethics component of the CPA exams that were required for their accounting jobs.

Audit firms serve a critical gatekeeping role in the financial markets and it is their jobs to ensure integrity of the financial reporting done by companies. It's why the independence and integrity of these firms are paramount.

Because it's their job to hold others accountable, Ernst & Young — one of the "big four" accounting firms — says it holds itself to a high standard of ethics. In fact, the firm's entire global code of conduct is based on an "ethical" framework.

"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."

Many of the employees interviewed during the federal investigation said they knew cheating was a violation of the company's code of conduct but did it anyway because of work commitments or the fact that they couldn't pass training exams after multiple tries.

The SEC said that the cheating went on for many years, going back to 2012. Following the discovery of an earlier cheating scheme, the firm took disciplinary actions and repeatedly warned its audit professionals not to cheat on exams. Still, the cheating continued.

Along with paying the $100 million fine, Ernst & Young has to audit itself and report the findings to the SEC, including an assessment of its ethics and integrity training. It'll also be reviewed by independent consultants that the firm will have to pay for.

The cheating scandal comes just a couple of weeks after the Financial Times reported that Ernst & Young is planning to split its auditing and consulting arms, a huge shakeup in the accounting world that would award its partners up to $8 million in shares each.

[Night Hides Not]

I did take the CPA exam my last week of college. That first afternoon, of 3 days, was Practice I. My friends and I were steamrolled. We were so punchy from that experience, people must have thought we were drunk, at dinner.

I recall the same format to the test that you listed. I passed Theory and Practice first time out, which was my objective.

Next time, in May (and right after tax season), I took Ethics and Business Law, knowing my chances were slim and none. It was for the experience with the newer version of the tests.

Finally passed it the following November (1992).

[Chode]

oldie but goodie

UCF Professor Richard Quinn accuses class of cheating [Original]

https://www.youtube.com/watch?v=rbzJTTDO9f4

[SamAdams76]

I literally saw that short just a couple weeks ago. MST3K does a great job "riffing" on it.

I'm old enough to remember when films like that were shown in public schools and I'm also old enough to remember when it was actually shameful to be caught doing something unethical.

[MachIV]

We had parts of the Glime Delaney(spelling) manuals as our final exams in Intermediate and Business Law. I graduated a little over 30 years ago but I didn’t bother sitting for it. I knew there was no way in you know where I could pass the exam even with Becker.

[minnesota_bound]

Accounting should be easy. 2+2=4
Now add in the tax code and new math and Common Core math and you got trouble.

[P.O.E.]

I’d like to see an audit of the federal government. But what’s the use when the auditors themselves are shysters.

[T Ruth]

Another indication of Ernst & Young's sleaziness is this article from ten years ago:

Ernst & Young CEO Will Use Position On Boy Scouts Board To Advocate For LGBT Inclusion

Ernst & Young was instrumental in destroying the Boy Scouts.

[Flick Lives]

However, the SEC says that a “significant number” of Ernst & Young audit professionals specifically cheated on the ethics component of the CPA exams that were required for their accounting jobs.

Audit firms serve a critical gatekeeping role in the financial markets and it is their jobs to ensure integrity of the financial reporting done by companies. It’s why the independence and integrity of these firms are paramount.

—

A lack of conscience is part of the reason for the Great Financial Crisis and will undoubtably be part of the reason for the next financial crisis.

A) The cheaters are not punished.
B) Government backstops the cheaters making them whole.
C) The cheaters learn that crime pays.

[mewzilla]

Anyone know if E&Y do any audits of state and/or local governments..?

[Fido969]

Ernst & Young has to audit itself

How is that working out for everyone?

[Born to Conserve]

Ethics Exam crib sheet: (E&Y internal circulation only)

Question 1: Do you lie?
Correct answer: No.

Question 2: Do you cheat?
Correct answer: No.

Question 3: Do you steal?
Correct answer: No.

How, exactly, does one not already know the correct answers?

[Hyman Roth]

It took me 3 tries to pass the CPA exam 30 years ago

Piker......It took me four......:>)

[Political Junkie Too]

Big deal!

If you don't need an exam to get grades in high school, and you don't need an exam to get into college anymore, then who needs an exam to get a job?

-PJ

[Night Hides Not]

LOL, but I was close to membership in the “300 Club”. I blew it with an 81 on Practice and a 78 on Theory. The other two were a perfect 75, which means the essay questions pulled me up to 75.

[Honest Nigerian]

I posted elsewhere about how the CPA industry is looking forward to being the authority on ESG. The SEC is pushing the nonsense. But “certification” well make it seem credible.
BTW - One would reasonably assume that E&Y is not the only firm that has the shortcomings regarding ethics.

[Not_Who_U_Think]

This is terrible reporting. What, exactly, did they do? Did they share an answer sheet? Was there a folder on the share labeled ‘ethics_answers’? Or was is a video walkthrough of the exam?

The writer writes a bunch of words talking about how bad it was, without telling the reader What It Was.

Journo school ain’t what it used to be.

[Billthedrill]

Well, heck, if you can’t cheat on your ethics exam, what can you cheat on?

[Hildy]

Every part of America is imploding.

[Grampa Dave]

Help a poor old man.

What the heck is an Ethics Exam?

[Night Hides Not]

It's basically one of the four parts of the CPA Exam. It was different when I took it 30 years ago. Ethics, in a broad sense when it comes to CPA work, is what you can and can't do when performing audits, as well as professional standards.

Not a great answer, but hopefully it helps.

When I took it, the 4 parts were: Accounting Theory, Accounting Practice (two separate test sessions), Auditing, and Business Law.