SEC fines Big Four accounting firm EY $100 million for cheating on CPA exams

The Securities and Exchange Commission has fined Big Four accounting firm EY for a $100 million fine for cheating on exams required to obtain Certified Public Accountant CPA licenses, and hiding that from the SEC during its investigation.

Over several years, hundreds of auditors cheated on the ethics portion of CPA exams and continuing education required to maintain CPA licenses, including those that ensure accountants can evaluate whether clients' financial statements are in compliance with Generally Accepted Accounting Principles.

From 2017 to 2021, nearly 50 EY auditors in multiple offices cheated on the ethics exams by using answer keys when taking their own exams or sending colleagues answer keys for them to use, according to the SEC.

EY employees cheated on the ethics exams even after being warned not to cheat. Hundreds of EY auditors cheated on exams required to maintain their CPA licenses, and hundreds more helped their colleagues cheat by sharing answer keys.

EY, who together with PwC, KPMG and Deloitte are the Big Four accounting firms, counts Amazon AMZN Alphabet GOOGL Coca-Cola KO and Apple AAPL among its public-market clients.

The SEC says that EY has a history of cheating on exams. From 2012 to 2015, over 200 auditors cheated on training exams by exploiting a flaw in software.

The firm continued to find instances of cheating even after the firm took action against those employees, according to the SEC. Most states require accountants to pass ethics exams, which are designed to make sure CPAs understand their ethical responsibilities.

EY admits that the company denied any issues with cheating during the SEC's investigation, even though the firm was tipped off by lawyers about cheating on a CPA ethics exam. The accounting firm did not inform the SEC of its mistake, even though it launched its own internal investigation into cheating on CPA ethics exams and other exams.

It is outrageous that the professionals responsible for catching cheating by clients cheated on ethics exams of all things, said Gurbir Grewal, director of the SEC's Enforcement Division. It is equally shocking that Ernst Young has hindered our investigation of this misconduct. This action should send a clear message that the SEC will not tolerate integrity failures by independent auditors. The SEC requires EY to retain two independent consultants to review the firm's ethics policies and its failure to disclose wrongful information, in addition to paying a $100 million penalty.

The SEC is looking into EY and is likely to bring charges against individuals at the accounting firm as well.

In 2019 the SEC charged another large audit firm, KPMG, for cheating on exams.

Jennifer Schonberger covers cryptocurrencies and policy for Yahoo Finance.