FRC orders audit firms in the UK to address exam cheating

The UK’s accounting watchdog has called on audit firms and professional bodies to ensure exam cheating does not occur in the UK following reports of staff at Big Four firms cheating at exams in the US, Canada and Australia.

The Financial Reporting Council (FRC) wrote to the CEOs of the largest auditors of UK listed companies last week, to express how “deeply concerned” it is about these events and “the potential impact” on UK audit firms.

“Given the severity and repeating nature of these issues we have decided that we need to ensure we have a deep understanding of the controls you have put in place to mitigate these risks,” wrote Sarah Rapson, executive director of supervision at the FRC, in a letter to CEOs of firms and professional bodies.

The intervention comes after several exam cheating scandals that saw huge fines issued to EY US, PwC Canada, and KPMG Australia.

In June, EY was handed a $100m fine after staff were caught cheating in ethics exams required to obtain and maintain Certified Public Accountant (CPA) licenses.

It was also fined for withholding evidence of this misconduct from the US Securities and Exchange Commission’s (SEC’s) enforcement division during the investigation.

“This action involves breaches of trust by gatekeepers within the gatekeeper entrusted to audit many of our Nation’s public companies. It’s simply outrageous that the very professionals responsible for catching cheating by clients cheated on ethics exams of all things,” said Gurbir S. Grewal, director of the SEC’s enforcement division.

In February, PwC Canada was fined more than $900,000 by regulators over exam cheating involving 1,100 of its auditors.

It was revealed by the Canadian Public Accountability Board that from at least 2016 to early 2020, more than 1,200 PwC personnel were involved in improper answer sharing related to training tests.

Similarly, KPMG Australia was fined A$450,000 in September 2021 for exam cheating. It was revealed by the Public Company Accounting Oversight Board that from at least 2016 until early 2020, more than 1,100 employees were involved in either providing or receiving answers.

The FRC has asked firms and professional bodies to “formally set out the preventative and detective controls” to ensure similar incidents do not happen in the UK.

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. However, the watchdog has said it has decided to “formalise, deepen and accelerate these discussions”.

The firms were asked to highlight the safeguards already in place to prevent and detect cheating by staff in their audit practices.

The regulator told firms to provide information about 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.

Audit firms and professional bodies must provide a response to the FRC by July 22.