Detection of exam fraud in auditing firms by UK accounting regulator

The UK accounting regulator discovered examples of exam cheating at auditing firms after scandals in the US, Canada and Australia prompted it to investigate the possibility of similar misconduct in Britain.

The Financial Reporting Council wrote to the UK’s professional accountancy bodies and the seven largest auditing firms in July to demand details on how to prevent accountants cheating on professional and internal exams.

In a letter to the companies published on Wednesday, the watchdog said the exercises had uncovered “cases of cheating” but added that it did not believe the problem was systemic.

A senior FRC executive told the Financial Times that accountant cheating on internal exams was as serious as it was on professional exams, rejecting the view of some in the profession that there is a “hierarchy” of misconduct depending on the type of assessment.

“We are still very concerned about cheating in exams,” said Sarah Rabson, executive director of supervision.

“The auditing profession is trustworthy and there is an irony where you have auditors who seek to cheat on ethics tests and the like.”

US regulators fined EY a record $100m in June after hundreds of employees shared answers or cheated on an ethics test and the company subsequently failed to report the violations.

Canada’s PwC was fined in February for cheating by 1,200 employees on internal exams, and KPMG was forced to pay a $450,000 fine last year for similar misconduct.

KPMG in the US was separately fined $50 million in 2019, in part for sharing answers by auditors, some of whom also rigged computers so employees could pass even if they scored less than 25 percent.

Rapson said responses to the FRC from the big four – Deloitte, EY, KPMG and PwC – and their biggest mid-level competitors BDO, Grant Thornton and Mazars had uncovered examples of fraud at “a handful” of companies in the UK.

She added that the council is continuing its investigations into cases reported to it by the companies.

The UK’s biggest case to date involved hundreds of KPMG staff cheating on training exams between 2018 and at least 2021, which has already led to a fine by the US audit regulator after the company reported the misconduct. US regulators frequently fine external auditors responsible for examining the accounts of US corporations’ subsidiaries.

Rapson said that cheating on routine internal tests that accountants take to update their knowledge was just as dangerous as doing so on formal professional exams required to obtain their accountancy qualifications.

“We take as dire a view of cheating on internal tests as it does on external tests because it’s about conduct, integrity and ethics, frankly,” she said. “The profession must be a trusted profession, and both types of fraud serve to undermine that position.”

The Supreme Council for Mineral Resources said it was pleased that companies and professional bodies were involved with its inquiries and that organizations in which problems were discovered had agreed to update their policies and procedures.

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