Let’s begin with a confession and an apology. On June 28, the SEC announced that it had charged Ernst & Young LLP with extensive cheating by its employees on exams required to obtain and maintain Certified Public Accountant (CPA) licenses. Moreover the Big Five firm withheld evidence of this misconduct from the Security and Exchange Commission’s Enforcement Division during the SEC’s investigation. EY admitted the facts leading to the SEC’s charges and agreed to pay a $100 million penalty. [You can read the SEC’s press release here.]
I have no idea how I missed such a major and troubling ethics story. It’s my job to keep up on such matters; I teach accounting ethics, though I haven’t had a training assignment for that profession since the pandemic hit. I apologize profusely. I will work to do better. While the various breaches of government, journalism, legal and business ethics that occupy most of my attention on Ethics Alarms are important, none are more ominous than this story. It really feels like the canary dying in the mine.
Accountants, you see, are the one of the most essential group of genuine professionals whose clients are the public at large. Lawyers represent particular clients; the clergy represents members of their faiths. Politicians and journalists are lost at this point: they cannot plausibly claim to represent the public interest and to be trustworthy, justifiably relied upon to tell the truth and not to act in their own self-interest. The profession of certified public accountancy exists so the public can know the truth about businesses and finance. They are supposed to be our gatekeepers
And now we know that another one of the so called “Big Four” accounting houses is corrupt: a similar scandal erupted at Klynveld Peat Marwick Goerdeler (KPMG) in 2019 (it was “only” fined 50 million by the SEC) and earlier this year, Price Waterhouse Coopers (Canada), was forced to pay $950,000 in penalties in the United States and Canada for widespread cheating among employees taking internal exams.
That leaves Deloitte as the sole member of the elite accounting quartet that hasn’t been exposed as untrustworthy. Yet.
Veteran CPA and accounting teacher Mike Shaub perfectly expresses what this development signifies in a blog post highlighted by Steve Mintz, “The Ethics Sage.” Shaub writes in part,
I am moving past anger into sadness because I know that in some ways, I am part of two institutions that are responsible for these egregious lapses in moral integrity. The EY problem is not just a public accounting issue; many of these people were cheating on ethics exams to become CPAs. They were brand new to the profession. That means they didn’t learn to engage in this behavior from the profession; they learned it in our classrooms.
To be fair, they actually learned it in middle school and high school, and they were rewarded for it with high class rankings and admissions to the best business schools. But the business schools, and the universities themselves, are greenhouses for this kind of cheating….
Some of us object, or push back, or try to institute tight controls to prevent it. But fewer and fewer students prove to be trustworthy, much to my chagrin, and they almost never report it when anyone else engages in dishonest behavior. This was true at EY as well; there is a distressing lack of moral courage in our classrooms and in the profession. The SEC enforcement proceeding commented extensively on the EY professionals who knew about it and did nothing. We have normalized this pattern of moral deviance—cheat, notice, roll your eyes—and its corrosive effect on education and professionalism is rarely discussed seriously in our hallowed halls. But it is moral cowardice.
One of the most degrading experiences of my career was watching my students during COVID taking exams on Zoom as if I was a prison guard monitoring the cameras…. this is what drained away my reserves and diminished my love for the classroom the last few years….
What are we going to do about it at the university level? I can tell you—absolutely nothing. What we are going to do is to deliver education ever more efficiently and let the chips fall where they may when it comes to the accuracy of student performance evaluations. All COVID has done is teach us new ways we can generate revenue from online programs that are bound to proliferate as a result. And if you think you are controlling cheating in these online programs, short of a CPA-exam-type testing environment, you are fooling yourself. Cheating facilitation firms Course Hero and Chegg have market caps of $14.1 billion and $2.3 billion, respectively….
I have no idea why the public would trust us as a profession to handle important integrity issues like auditor independence well when we are willing to compromise our integrity for so little. Twenty years on from Andersen’s collapse after Enron and WorldCom, I would have hoped we would have made a case for why the accounting profession deserved an opportunity at redemption, a second chance to be self-regulating after having learned some hard lessons. Instead, we have done the opposite.
There is no case to be made for self-regulation in the accounting profession. We are technically competent, and we can solve a lot of problems for clients. But the public we are assigned to protect, the shareholders and investors, trust us at their peril….
The only reason that accounting is a profession is because we have assumed the responsibility, the duty, to protect the public. In exchange, we are the only ones who can provide an audit. But we have proven unwilling to even assume the duty to take a simple exam honestly. An ethics exam, for heaven’s sake! How can we be trusted to assume larger duties?
He concludes in what only can be called an expression of despair: “You are watching a profession die.”