Accounting firms ordered to explain how they stop staff cheating in exams

The UK accounting watchdog has ordered the biggest audit firms to explain how they prevent staff cheating on professional exams after regulators clamped down on the practice following a series of scandals in the US, Canada and Australia.

The Financial Reporting Council wrote last week to the chief executives of the seven largest auditors of UK listed companies, including the Big Four — Deloitte, EY, KPMG and PwC — and their biggest mid-tier competitors BDO, Grant Thornton and Mazars.

The intervention followed recent fines for EY, PwC and KPMG over widespread exam cheating by staff in the US, Canada and Australia. Regulators uncovered examples of answer sharing by staff on internal assessments and tampering with the firms’ testing platforms to reduce the number of correct answers needed to pass. 

“The FRC is deeply concerned about these events and the potential impact on UK audits if such an issue was identified in the UK,” Sarah Rapson, FRC executive director for supervision, wrote in the letter, a copy of which was seen by the Financial Times.

In a separate letter to the heads of the UK’s accountancy professional bodies, Rapson cited the “severity and repeating nature” of exam cheating as the reason for the FRC’s additional scrutiny of existing controls.

Supervisors from the regulator have already held talks with accounting firms to clarify what measures they have in place to mitigate the risk of exam cheating, but the FRC decided “to formalise, deepen and accelerate these discussions” because of the issue’s importance, Rapson said in the letter to the firms.

The firms were asked to outline the safeguards already in place to prevent and detect cheating by staff in their audit practices and their wider operations, which include tax and consulting.

The watchdog told firms to provide information regarding both internal assessments taken by their professionals throughout their careers as well as those invigilated by the firms on behalf of industry professional bodies such as the ICAEW and ACCA, which candidates must pass to become qualified chartered accountants.

The professional bodies were also asked to set out how they ensure the integrity of their exams for students and qualified accountants.

The letters referred to the record $100mn fine imposed on EY by the US Securities and Exchange Commission this month for cheating by dozens of its employees on an ethics exam and the firm’s subsequent failure to disclose the matter to the regulator.

Rapson also cited fines imposed on PwC’s Canadian business for exam cheating by 1,200 staff and a $450,000 penalty levied against KPMG last year for similar misconduct.

KPMG’s US business was separately fined $50mn in 2019 for exam cheating and for altering audits after they were completed based on illegal tip-offs from inside a watchdog.

In a sign that cheating on professional exams extends beyond the accounting industry, this week the Financial Industry Regulatory Authority, a US regulator, announced it had barred two people from the securities industry for turning to online forums for help during tests.