Exam cheating at audit firms uncovered by UK accounting regulator

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

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

In a letter to the firms published on Wednesday, the watchdog said the exercise had revealed “instances of cheating” but added that it did not believe the problem was systemic.

One of the FRC’s most senior executives told the Financial Times that cheating by accountants in internal tests was just as serious as in professional exams, rejecting the view of some in the profession that there was a “hierarchy” of misconduct depending on the type of assessment .

“We remain pretty concerned about exam cheating,” said Sarah Rapson, executive director of supervision.

“The auditing profession is a position of trust and there’s an irony where you’ve got auditors seeking to cheat on ethics exams and that sort of thing.”

US regulators fined EY a record $100mn in June after hundreds of staff shared answers or cheated on an ethics exam and the firm then failed to report the violations.

PwC’s Canadian business was fined in February for cheating by 1,200 staff on internal tests and KPMG was forced to pay a $450,000 penalty last year for a similar misconduct.

KPMG’s US business was separately fined $50mn in 2019, partly for answer sharing by auditors, some of whom also manipulated computers so staff would pass even if they scored less than 25 per cent.

Rapson said responses to the FRC from the Big Four firms — Deloitte, EY, KPMG and PwC — and their biggest mid-tier competitors BDO, Grant Thornton and Mazars had revealed examples of cheating at a “handful” of firms in the UK.

She added that the FRC was continuing its inquiries into the issues reported to it by the firms.

The biggest case of cheating in the UK to date hundreds involved of KPMG staff on training tests between at least 2018 and 2021, which has already resulted in a fine by the US audit regulator after the firm self-reported the misconduct. US regulators frequently fine overseas auditors responsible for checking the accounts of subsidiaries of American companies.

Cheating on routine internal tests taken by accountants to keep their knowledge up to date was just as serious as doing so on formal professional exams required to obtain their accounting qualifications, said Rapson.

“We take just as dim a view of cheating in internal tests as we would in external tests because it goes to behaviour, integrity and ethics, frankly,” she said. “The profession should be a trusted profession and both types of cheating serve to undermine that position.”

The FRC said it was pleased with the firms’ and professional bodies’ engagement with its inquiries and that the organizations where problems had been discovered had agreed to update their policies and procedures.

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