Canada's accounting regulator to review EY after US firm hit with big fine
The Canadian Public Accountability Board (CPAB) will ask EY Canada if its employees cheated on exams after the US Securities and Exchange Commission last week fined EY US a record $100 million for cheating on CPA exams and hindering the regulator’s investigation.
According to the SEC, 49 EY US audit employees shared answer keys to the ethics portion of the CPA exam between 2017 and 2021, while hundreds more cheated on continuing professional education courses required to maintain CPA licenses.
After being informed of the SEC’s investigation into potential cheating, EY told the watchdog it didn’t have any current issues with cheating and failed to correct its submission when the accountancy’s own internal investigation confirmed there had been cheating.
“It’s simply outrageous that the very professionals responsible for catching cheating by clients cheated on ethics exams of all things,” said Gurbir Grewal, director of the SEC’s enforcement division, in a Tuesday press release announcing the largest ever SEC fine for an audit firm. “And it’s equally shocking that Ernst & Young hindered our investigation of this misconduct.”
CPAB, Canada’s non-profit accounting industry watchdog, said in the wake of the US ruling that it would examine EY Canada’s operations to see if cheating occurred there as well. The regulator was not part of the US investigation, though its American equivalent, the US Public Company Accounting Oversight Board (PCAOB) was.
EY spokesperson Victoria McQueen told The Globe & Mail the settlement relates only to the US member firm and does not impact EY Canada.
PwC Canada earlier this year was fined US$750,000 by the PCAOB and $200,000 by the CPAB after 1,200 employees were caught cheating on internal tests.
According to an order from CPAB, from 2016 to 2020, more than 1,200 PwC employees were involved in improper answer sharing for the firm’s internal testing related to technical instruction, professional development, and continuing professional education in auditing, accounting, and independence.
At the time of the ruling, CPAB said it took into account that PwC self-reported the cheating and co-operated with the investigation. However, the industry regulator cannot impose fines for economic damages or punitive reasons.
Canada itself lacks a true analogue to the SEC; each province has its own securities commission and the Ontario variant appears fairly toothless in comparison to the US federal watchdog. According to an Auditor General of Ontario audit from earlier this year, the Ontario Securities Commission (OSC) has only collected 28%, or $145 million of the $525 million it imposed in monetary sanctions in the ten fiscal years between 2011-12 and 2020-21. Ontario Auditor General Bonnie Lysyk noted the OSC lacks collection enforcement authority and powers, as well as “the necessary technology and analytical tools to conduct efficient oversight of market participants.”
The OSC also appears to absolve itself of punishing accountancies for ethical lapses in CPA examinations, preferring to let them self-police via the lenient CPAB. In contrast, the SEC in 2019 slapped KPMG US with a $50-million fine for cheating on CPA tests, alongside the recent hefty censure of EY US.
The OSC will still, however, fine accountancies for severe audit-related lapses that impact the integrity of markets.
EY Canada in 2014 admitted no wrongdoing but voluntarily paid an $8-million penalty to the OSC over its audits of Sino-Forest Corp and another Chinese firm. Sino-Forest in 2012 filed for bankruptcy and was found guilty in Ontario court of engaging in securities fraud. The OSC alleged EY did not exercise sufficient professional skepticism about Sino-Forest’s stated timber assets and failed to comply with generally accepted auditor standards.
