Greed and cleverness are dangerous vices affecting many business establishments globally. The two evils often arise from individuals’ inability to comply with the set operations’ laws. Reports concerning Ernst & Young LLP’s (EY) violation of critical integrity laws by June this year proves this problem’s dominance even in institutions deemed fair by the public. EY is among the four greatest global financial auditing firms with a significant following and public trust. The entity competes with KPMG, PricewaterhouseCoopers, and Deloitte in offering services worldwide, with the U.K and the U.S. being their primary markets. Accordingly, the organization is liable to comply with the England laws regarding auditing services’ delivery, including integrity and fairness requirements. EY’s 2022 issue surrounded its mistake of concealing employees (auditors) cheating the integrity tests for years.
The act violated several laws and rules governing the industry, such as the regulation necessitating auditing firms to uphold uprightness in undertaking a certified service and maintaining appropriate quality control systems. The following discussion expounds on these and several accounting principles breached by EY, warranting the hefty fine charged by S.E.C.
The Public Company Accounting Oversight Board (PCAOB) is a U.K. organization working with the Security and Exchange Corporation (S.E.C.) to protect the public from professional accountants’ manipulation. The body has several rules stipulating specific behaviors that certified accountants should avoid. According to “Rules of practice” (2017), one such regulation is Rule 102, demanding the utmost integrity from public accounting firms and their employees. EY violated this law knowingly by failing to act uprightly when delivering professional services. As a certified organization serving the public, the organization is obliged by the law to honor its license’s requirements of abiding by the law. However, hiding and retaining employees known to cheat the integrity exams for years violates the PCAOB requirement (Ganun, 2022).
EY’s actions towards the professional services delivery regulators are criminal. The deeds are synonymous with a security officer in charge of vulnerable children’s protection, but who, instead of protecting the minors, results in defiling them. The matter causes significant pain to the regulator, who feels disrespected by the contemptuous licensed player. Accordingly, maintaining employees cheating in the exams against the law amounts to cheating the licensing body, a punishable offense.
Ernst & Young’s actions tarnished the accounting profession’s good name and will. The aspect violates Section 4C (a)(2) of the Exchange Act, which requires professionals to safeguard their profession’s title and credibility (Securities Exchange Act of 1934, 2016). Other than betraying the certifying body, EY’s deeds over the years sell out the auditing profession as an easygoing unprofessional career. The company’s reputation and trust among the global population play a major role in this problem. EY plays in the so-called big four entities in the international accounting industry (Ganun, 2022).
The agency’s name and actions significantly show what happens in the sector, owing to its dearness to people and the public. Anyone intending to study the practical operations of the accountancy segment can easily base it on EY and have the world trust the report. According to Ganun (2022), such would happen based on the organization’s big name, public trust, and many years of operation. Breaching such a high level of professional trust is the same as blowing the whole accountancy and auditing occupation’s name, thus justifying the S.E.C.’s tough penalty.
The unlawful occurrences at EY depict the firm’s laxity in devising and implementing the appropriate quality control system. PCAOB’s Rule 103 requires all firms providing professional accounting services to put in place stringent measures to ensure laws compliance among employees and other internal operations (“Rules of practice,” 2017).
EY’s main problem, according to S.E.C., is the inability to control its workers’ cheating behaviors and the decision to maintain them while knowing they are law-breakers. Moreover, despite knowing their unlawful acts, the S.E.C. officials remain saddened by EY’s act of safeguarding the corrupt workers against the certifying body’s previous integrity investigations. Ernst & Young’s operations prove deliberate ignorance of the law, thus breaking it. Investigations show that many cheating employees do that due to job commitments and blatant inability to pass the periodic continuous tests necessary to maintain an operations license (Ganun, 2022). The two factors display EY’s cleverness in cheating the law. Adopting the right employment rules can easily eliminate the academic cheats who cannot pass the initial or continuous licensing tests. Therefore, the failure to implement such a scheme shows EY’s negligence and justifies its punishment.
Stage managing issues during S.E.C.’s investigations of the organization is an offense committed by EY. The matter violates PCAOB’s Rule 102 regarding presence and conduct before the commission (“Rules of practice,” 2017). The law clarifies how EY and the other auditing firms should behave professionally before clients and competitors. Additionally, Rule 102 demands total compliance and the uprightness of all accounting professionals and organizations when interacting with the regulating body (“Rules of practice,” 2017).
The regulation appreciates the significant pressure among compliant organizations in controlling the highly tempting money issues and the likely existence of troublesome employees. Therefore, S.E.C. hardly treats the presence of corrupt workers in an accounting entity as a big deal. The agency requires independent auditing corporations to establish stringent internal systems to eliminate such crooks. The regulating body is further ready to work with organizations to ensure integrity requirements’ compliance, where S.E.C. offers nonpartisan investigation experts to aid the firms in unraveling crooked workers’ issues. Consequently, the regulator is genuinely rattled by finding that organizations deliberately hide unethical staff despite such a setup. EY’s case clearly violates this rule, thus the painful consequences.
Protecting individuals known to be lacking in integrity is another crime committed by EY. According to Rule 102 e (ii) of PCOAB, an accounting firm is lawfully obliged to report all certified public accountants known to operate without honoring the integrity regulation. Other than stage-managing the present issue, Ganun (2022) reports that EY knowingly protected persons known to cheat the integrity test between 2012 and 2015. The company’s internal systems captured the said workers, after which the employer concealed the information to S.E.C. despite rumors reaching the regulator (Ganun, 2022). Therefore, the present offense under which EY faces a serious fine is not the first. But for a whistle-blower, the company would equally cover it from S.E.C. and have investors continue suffering. The crime is punishable through disbarment or total suspension, but the S.E.C. opts to charge EY a hefty fine instead. Ernst & Young ought to have fired and reported the over one hundred workers found accountable for the misconduct. However, the employer’s desire to protect the company name by masking the dangerous misdemeanor exposes the organization to the present predicaments.
EY is chargeable for the willful support and encouragement of violating specific provisions of the Federal securities laws and the rules and regulations thereunder. Such an infraction infringes Rule 102 e (iii) of PCOAB, according to “Rules of practice” (2017). The law criminalizes any form of encouragement granted to an offender, either directly or indirectly, to violate the laid professional stipulations. EY’s acts of failing to subject its dishonest employees to S.E.C. is direct support of a criminal act, thus an abuse of Rule 102 e (iii). Arguably, the problem started with a specific worker(s) who cracked a loophole to cheat the integrity test. The employee then taught another staff and the crime developed among a larger number of workers. As per Ganun (2022), EY learned about the issue in 2015 but chose to cover it, even from the S.E.C. investigators. Sensing the protection triggered the behavior’s continuation and its spreading among more staff members. Possibly, the organization benefits from the cheating process by having workers afford more time to focus on the job other than spend time completing the continuous integrity examinations.
EY’s acceptance to use trickery to maintain a good name exposed investors to losses and violated the auditor independence expectation. Kahn (2020) maintains that shareholders and financiers depend on auditors’ and accounting professionals’ integrity to measure investments’ genuineness. That results from the auditors’ primary role of determining authentic account reports (Kahn, 2020). The trust further depends on the administered integrity tests that accounting professionals continue to undertake throughout their careers. Accordingly, cheating in integrity evaluations makes it easy for auditors to certify wrong account documents without investigating their correctness.
Kahn (2020) reports a related matter regarding EY involving Kiloti, a UAE minerals organization that Ernst & Young’s unprofessional accountants help to clean dirty money involving gold acquired from conflict regions. Similarly, “Former auditor blows the whistle” (2022) argues that EY’s carelessness and failure to ratify the existence of money said to be in a Singapore bank account led to Wirecard’s death. Such, plus several other integrity misconducts that EY faces in court in different parts of the world, proves the firm’s longtime dishonesty and accounting principles violation.
In conclusion, Ernst & Young is a London-based auditing services provider known for its intensive coverage worldwide. The firm now faces a 100 million dollar fine due to integrity misconduct. The S.E.C. finds EY liable for covering dishonest employees who have been cheating in the integrity test for years. The disturbing truth is that EY maintained, protected, and supported employees known to engage in professional misconduct. Therefore, the firm is punishable under Rules 102(e)(1)(ii) and (iii) of the Commission’s Rules of Practice and Sections 4C(a)(2) and (a)(3) of the Exchange Act. Because of EY’s misconduct, global investors keep losing their investments, with many taking the firm to court. Consequently, EY’s integrity-based mission remains but a petty marketing account meant to lure unsuspecting wealthy investors for the organization to continue to enjoy super-normal returns. EY’s penalty of 100 million dollars is the largest penalty charged by the S.E.C. This point reiterates the regulating body’s dejection towards EY. Possibly, S.E.C.’s hefty penalty on Ernst & Young intends to warn the other players in the industry concerning the dire consequences of engaging in professional malpractice to maximize income.
References
Former auditor blows the whistle on Ernst & Young. (2022). CRI Group. Web.
Ganun, J. (2022). Accounting giant Ernst & Young admits its employees cheated on ethics exams. NPR. Web.
Kahn, J. (2020). If Ernst & Young auditors had done this one thing, they might have uncovered Wirecard’s $2 billion fraud years sooner. Fortune. Web.
Rules of practice. (2017). SEC. Web.
Securities Exchange Act of 1934. (2016). SEC. Web.