Does ESG Reporting Enhance the Understandability of Sustainability?

Recent Actions by the PCAOB Against Big Four Accounting Firms Raises the Issue of Public Trust

Audit Firm Professionals Have Cheated on Ethics and Internal Training Exams

I have previously blogged about the cheating scandal at Big Four CPA firms, where the four firms were caught helping staff to pass tests associated with internal training continuing education programs to some extent or another. It is a black eye on the face of those firms. At best it was a one-time deviation from ethical standards. At worst it represents a pattern of behavior that raises the question: Why should the public trust these firms to conduct professional, ethical audits when they do not have their own house in order? Recent disclosures of additional cheating have just come to light, which raises the question once again.

Reviewing Past Disclosures of Cheating

Ernst & Young

The SEC fined Big Four CPA firm Ernst & Young (EY) $100 million after admitting that its employees cheated on their ethics exams. This was the largest fine charged by the SEC at the time. In this case, almost 50 EY audit staff cheated on the ethics component of CPA exams and in ethics CPE, the latter with software flaws that allowed exam takers to exploit the flaw and to pass CPE exams without the required number of correct responses.

The offenders shared answer keys to the ethics portion of the CPA Exam CHEATING between 2017 and 2021 and hundreds more cheated on CPE courses, according to the SEC. The firm said in a statement “nothing is more important than our integrity and our ethics” and promised it would take efforts to enforce compliance with ethical rules. The actions of the firm do not match their words as indicated by the recent case of Sealed Air where the firm solicited inside information from the client about competitive bids for an audit to help EY to be selected as the new auditor of the company.


The SEC complaint against KPMG for cheating on training exams said that "on numerous occasions" KPMG audit professionals who had passed their training exams sent the answers to their colleagues to help them pass too, primarily via email or printed answers. The SEC noted that this practice took place at all levels of seniority, from nervous first-year auditors to lead engagement partners who were responsible for compliance with PCAOB standards in auditing their clients’ financial statements.

The senior cheaters not only sent exam answers to other partners, but even solicited answers from and sent answers to their subordinates. When word of this began getting through to senior leadership, KPMG launched its own internal investigation, which prompted the cheaters to hide the evidence.

Like EY, KPMG was embroiled in a scandal whereby they solicited information from former PCAOB staffers who had joined the firm about which audits would be inspected by the board. They did this because of historically high audit deficiency rates cited by the board.


Turning to PwC, the PCAOB fined PwC-Canada $750,000 for having faulty quality control standards that allowed more than 1,200 professionals to cheat on internal training courses covering auditing, accounting, and professional independence by improper answer sharing from at least 2016 until early 2020. More than 1,100 of them were from the firm’s assurance practice.

After discovering the training-related misconduct in January 2020, PwC-Canada reported the matter to the PCAOB and began implementing remedial policies and procedures,” the PCAOB order stated. “In ordering these sanctions, the Board took into account the Firm’s extraordinary cooperation in this matter, including self-reporting and remedial actions.” Kudos to PwC for taking swift action to right the wrong.

New Disclosures of Cheating

On April 10, 2024, PCAOB Chair Erica Y. Williams made the following statement at a virtual press conference announcing the PCAOB imposed a record $25 million fine sanctioning KPMG Accountants N.V. (“KPMG Netherlands”) after the PCAOB found that widespread improper answer sharing occurred at the firm over a five-year period and that the firm made multiple misrepresentations to the PCAOB about its knowledge of the misconduct.

The PCAOB announced the largest civil money penalty in the history of the PCAOB – a $25 million fine against KPMG Netherlands for violations of PCAOB rules and quality control standards relating to exam cheating and misinforming investigators.

The widespread exam cheating went on for a period of five years, from 2017 to 2022, and involved hundreds of professionals, reaching as far as partners and senior firm leaders – including the firm’s former Head of Assurance, who is also facing a $150,000 penalty and permanent bar under today’s orders.

The growth and breadth of exam cheating in this case was enabled by the firm’s failure to take appropriate steps to monitor, investigate, and identify the potential misconduct.

Furthermore, during the PCAOB’s investigation, the firm submitted – and failed to correct – multiple inaccurate representations to the PCAOB.

Also, the PCAOB announced $2 million in fines against Deloitte Indonesia and Deloitte Philippines for violations of PCAOB rules and quality control deficiencies that resulted in widespread answer sharing on internal training tests. 

The misconduct in these cases reveals an inappropriate tone at the top and a complete failure by the firm’s leadership to promote an ethical culture worthy of investors’ trust.

Since 2021, the PCAOB has sanctioned nine registered firms for exam cheating.

SEC Position No cheat

“Auditor independence is essential to maintaining trust in our capital market system,” PCAOB Chair Erica Williams said in a statement. “Firms must have effective guardrails in place to enforce independence and uphold the integrity of their audits.”

In discussing these cases, Williams said:

“Impaired ethics erode trust and threaten the investor confidence our system relies on. The PCAOB will take action to hold firms accountable when they fail to enforce a culture of honesty and integrity. This Board set a goal to strengthen PCAOB enforcement, and we are doing just that. As of today, the PCAOB has imposed $34 million in penalties this year alone, and it’s only April. “We set a record in 2022. We broke that record in 2023. And we are breaking it again today. Let today’s news be a clear warning to those who break the rules – if you put investors at risk, there will be consequences.”

When I was an accounting student, I learned about the importance of having a high level of ethics to serve the public good. Over the years, this has been eroded, in part because the consulting group in the firms is made up largely of non-CPAs. In my view, they do not have the same high standards as auditors because of commercial interests. As a result, I believe the firms should be required to split off their audit services group from tax and consulting. The time has come to do so to protect the public interest, as I have blogged about before.

Posted by Steven Mintz, Ph.D., aka Ethics Sage, on May 2, 2024. You can sign up for his newsletter and learn more about his activities at: