SEC hits Ernst & Young with $100M fine for ethics lapses
Illustration: Brendan Lynch/Axios
The Securities and Exchange Commission on Tuesday slapped a $100 million fine against Ernst & Young (EY), accusing the accounting giant of ethical breaches committed by some of its Certified Public Accountants (CPA).
Why it matters: According to the SEC, the penalty is the largest ever imposed against an audit firm, underscoring the gravity of a situation that the agency said “discredited the accounting profession” as a whole.
- EY also violated a Public Company Accounting Oversight Board (PCAOB) rule that required them to adhere to specific industry guidelines, regulators wrote in a complaint.
The details: According to the SEC, “a significant number” of EY’s audit professionals cheated on the ethics component of the CPA exam over “multiple years,” as well as other exams required to maintain those licenses.
- During that time, the firm knowingly misrepresented the misconduct to the SEC, undermining industry practices.
- EY’s professionals cheated on exams designed to make sure that accountants can “properly evaluate whether clients’ financial statements comply with Generally Accepted Accounting Principles,” the SEC stated.
Ernst & Young admitted to the SEC’s findings, and agreed to engage with independent consultants to correct the lapses.
What they’re saying: “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 statement.
- “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,” he added.
Thought bubble: On multiple fronts, the SEC is getting more comfortable flexing its muscles as the sheriff of financial markets.
The action is also a reputational black eye for an accounting industry that’s managed to fly under the radar since Enron’s ignominious collapse 20 years ago led to the demise of auditor Arthur Andersen.