SEC Imposes Largest Audit Firm Penalty Ever of $100 Million for Cheating on CPA Exams

On June 28, 2022, the SEC accepted a $100 million settlement offer from an audit firm (Firm) to settle charges related to (1) cheating by the firm’s audit professionals on exams required to obtain and maintain Certified Public Accountant (CPA) licenses and (2) misleading and withholding evidence of the misconduct from the SEC’s Enforcement Division (Division). The penalty was the largest ever imposed by the SEC against an audit firm. The SEC’s order (Order) finds that the Firm violated Public Company Accounting Oversight Board (PCAOB) rules requiring firms to act with integrity in connection with the professional services they provide to clients. The Order also finds that the Firm committed acts discreditable to the accounting profession and failed to maintain an appropriate system of quality control.

Over multiple years, a significant number of the Firm’s audit professionals cheated on CPA ethics examinations and continuing professional education courses by using answer keys and sharing them with their colleagues. During an investigation by the Division in June 2019 about cheating at the Firm, the Firm withheld evidence of potential misconduct in a formal response to the Division. Additionally, the Firm did not correct its submission even after the Firm later confirmed the cheating during an internal investigation. The Firm ultimately informed the PCAOB of the misconduct following further delay, after, according to the Firm, the extent of the misconduct within the Firm was clearer and the Firm had a credible plan in place to address the problem. The PCAOB in turn informed the SEC, which ultimately did not learn about the issue until almost nine months after its June 2019 inquiry.

The Firm admitted to the facts underlying the SEC’s charges and agreed to engage in extensive remedial undertakings, including hiring independent consultants to review and implement compliance policies relating to ethics and integrity. The Order notes that the investigation is continuing.

The Order can be found here.

The SEC press release can be found here.

The opinions expressed are those of the author(s) and do not necessarily reflect the views of the firm or its clients, or any of its or their respective affiliates. This article is for general information purposes and is not intended to be and should not be taken as legal advice.