June 30, 2022
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As many of you know firsthand, preparing for, taking, and passing the CPA exam is a grueling experience. I mean, maybe it’s not as grueling as it used to be since it’s no longer pencil/paper and only offered twice a year. (Full disclosure: That is the CPA exam that I passed.) Regardless of which exam you took, it’s an ordeal, and it’s a great relief to have it behind you.
But, again, as many of you know, that’s not the end of it. Many states require an ethics exam that prospective CPAs must also pass. The ethics exam isn’t difficult; it’s open book and self-study. Still, it’s lengthy and requires a score of 90% to pass, so you can’t totally wing it. Compared to the CPA exam, though, it’s a relative walk in the park.
Accounting has a reputation for being an ethical profession, but it’s fair to say this reputation isn’t due to having to take an ethics exam. In part, at least, accounting attracts people who want to serve and advise businesses in the hopes that these businesses become successful. The vast majority of folks conduct themselves and want to advise these businesses in an ethical manner. Answering multiple choice questions on an ethics exam isn’t going to make these people any more ethical. It’s arguable that it’s just something the administrators of the CPA exam use to show that their members are assessed on ethics. And this is fine. Virtually every profession has something like this, and similar to accounting, one exam an ethical professional does not make.
Yet, there are some people who tip their hands:
Ernst & Young LLP admitted that dozens of its audit personnel cheated on the ethics portion of the Certified Public Accountant exam and that the firm misled US regulators probing the misconduct, according to the Securities and Exchange Commission.
The SEC announced on Tuesday that EY would pay a $100 million fine — the largest ever penalty for an audit firm. In addition to violating accounting rules, EY didn’t cooperate with a key part of the regulator’s probe, the agency said.
This isn’t the first time something like this has happened. From 2012 to 2015, over 200 EY employees cheated on CPE exams (non-ethics, FWIW) by virtue of a software bug. KPMG had a similar scandal in 2019 (which followed another equally astonishing scandal). KPMG’s scandal is relevant because 1) in the wake of it, EY reminded all of its people that cheating is bad, won’t be tolerated, etc. and 2) it triggered the SEC into asking EY if any ethical lapses vis a vis training or CPE courses had occurred.
Anyway, why would a few hundred EY employees cheat on CPE tests—including 49 on their ethics exams—even after the firm warned them many times not to? The SEC’s complaint has your answer.
Many professionals acknowledged during the firm’s investigation that they knew their conduct violated EY’s Code of Conduct, but they cheated because of work commitments or an inability to pass training exams after multiple attempts.
Ah, yes. Now, while I’m not defending or condoning cheating on an ethics exam, I do understand why someone who is under significant pressure at work and/or has failed an ethics exam multiple times might cheat to get it over with. It’s just ego depletion, aka, “Oh, enough already.” Nevertheless, cheating on an ethics exam… yeah, don’t do that.
As for EY the firm, they’re in the doghouse too. Back to the complaint:
In June 2019, the SEC’s Division of Enforcement sent EY a formal request for information about complaints the firm had received regarding cheating on training exams. On the same day EY received this request, the firm received a tip that an audit professional had shared an answer key to a CPA ethics exam. EY did not disclose this information to the SEC. To the contrary, its submission indicated that the firm did not have any current issues with cheating. In light of the tip it had received, EY’s June 20 submission was materially misleading. But EY never corrected its submission. Even after the firm began an internal investigation, confirmed there had been cheating, and the matter was discussed among senior lawyers at the firm and with members of the firm’s senior management, EY still did not correct its misleading submission.
The aforementioned KPMG cheating scandal triggered the SEC’s request for EY to disclose any cheating, and yet, EY did not disclose all of the cheating. [Insert your facepalm meme of choice here.]
Personally, I don’t find it surprising that lawyers for a mega-accounting firm would get a little cute with a what-they-knew-when-they-knew-it kind of thing. But as you can see, the SEC didn’t appreciate it and is now forcing EY to undergo a new investigation about how their executives and lawyers behaved in this situation. Plus, basically EY employees who had knowledge of this have to take six hours of ethics training every six months over the next three years. And, obviously, the optics aren’t great:
“This conduct was more than just dishonest. It was remarkably stupid,” said Joseph Grundfest, a professor at Stanford Law School. “The stupidity might actually trump the dishonesty, if that’s possible in this situation.”
Oh, I’d say it’s very much possible. The whole thing is incredibly dishonest, but, yes, remarkably stupid. Perhaps you can chalk up the cheaters to people who were unethical or were just stressed out and screwed up. But the firm can’t really use those excuses for itself. Either people were crossing their fingers behind their backs, or they really, really need to take an ethics exam.
As we’ve discussed a few times, the metaverse is the latest technology whose hype seems to have a toehold in the accounting profession. And sure, new technology can be exciting, but so far it seems like a very expensive, very awkward way for accounting professionals to talk shop with clients. Recent developments have done little to change that perception:
KPMG’s U.S. and Canadian firms debuted a metaverse collaboration hub Wednesday where its employees, clients and communities will be able to connect, engage and explore growth opportunities across industries and sectors during virtual meetings.
The collaboration hub will enable KPMG to offer immersive learning and development experiences, as well as recruit talent and converge the physical and digital worlds.
There’s a video, if you like, but I have to say: It’s a little disappointing. If I wanted to watch people sit at tables, type on laptops, and mill around while making clunky hand gestures, I’d just go to an accounting conference. At least there’s booze at an accounting conference.
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