Canada’s audit regulator will ask Ernst & Young if its employees cheated on exams and training courses after the firm was handed a record penalty for allowing hundreds of its workers to do so in the U.S.
The U.S. Securities and Exchange Commission announced a US$100-million settlement with E&Y after 49 of its audit professionals cheated on exams required to obtain and maintain their Certified Public Accountant licences over five years. In addition, hundreds of E&Y employees cheated on continuing professional education courses, the SEC said.
It’s believed to be the largest fine the SEC has imposed on an audit firm.
As part of the settlement, E&Y admitted it had told the SEC in a written submission that it ”did not have current issues with cheating,” but then failed to update the submission even as it launched an internal investigation, confirmed there had been cheating and its senior lawyers discussed the matter with members of the firm’s senior management. E&Y also “did not co-operate in the SEC’s investigation regarding its materially misleading submission,” the SEC said.
Susan Schutta, spokesperson for the Canadian Public Accountability Board, said CPAB was not part of the U.S. investigation and learned of the settlement when the SEC announced it. CPAB, which inspects the accounting firms that audit public companies, will now examine E&Y’s Canadian operations to find out whether cheating occurred here, she said.
“We take these matters extremely seriously and will be reconfirming compliance with ethical standards,” she said.
In a statement, E&Y Canada spokesperson Victoria McQueen said the settlement relates only to the U.S. firm and its professionals and does not impact the Canadian firm.
“Sharing answers on any assessment or exam is a violation of our Code of Conduct and is not tolerated at EY,” she said. “Our response to this unacceptable past behaviour has been thorough, extensive and effective.”
In February, CPAB reached a settlement with Canada’s PricewaterhouseCoopers LLP. after more than 1,200 PwC professionals shared answers on tests in mandatory internal training courses from 2016 to 2020.
CPAB said shared computer drives contained answers for 46 of PwC’s 55 mandatory audit tests, as well as tests containing content on professional integrity and independence. PwC employees also shared answers via e-mails, hardcopy documents and discussed answers out loud during the tests. Those sharing answers included junior staff, managers, directors and partners at the firm, CPAB said.
PwC self-reported the problem to CPAB after a whistle-blower raised the issue internally. The enforcement orders called for public censure, the development of new internal procedures to prevent the problem from happening again and a $200,000 fine designed to recoup CPAB’s investigation costs. CPAB cannot impose fines for economic damages or punitive reasons.
CPAB announced the settlement at the same time as PwC’s Canadian unit settled, for the same violations, with the Public Company Accounting Oversight Board (PCAOB), the U.S. version of CPAB, for $750,000.
In a February statement, PwC’s Canadian chief executive, Nicolas Marcoux, said PwC had taken steps “including retraining, additional ethics training, financial penalties, written warnings and terminations where warranted . . . While we are confident there has been no impact or compromise to the quality of our audits as evidenced by our current inspection results, we expect more from everybody in our firm.”
CPAB previously disciplined Deloitte LLP. after its employees falsified the date and time stamps on audit work papers by changing the settings on their computers to a different date. The incidents occurred from November, 2016, through early March, 2018, on audits involving 29 different companies, CPAB said.
The SEC’s order against E&Y found the firm violated a rule from the PCAOB requiring the firm to “maintain integrity in the performance of a professional service.” The SEC also said E&Y “committed acts discreditable to the accounting profession, and failed to maintain an appropriate system of quality control.”
In a statement, Gurbir Grewal, the director of the SEC’s Enforcement Division, said, “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.”
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