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September 24, 2023

FRC Asks Large Audit Firms What They’re Doing About All This Cheating

a young man cheating by looking at his classmate's test answers

Financial Times is reporting that across-the-pond regulators at the Financial Reporting Council have written a letter to CEOs at seven audit firms requesting details on how the firm prevents staff from cheating on professional exams. This comes after the SEC fined EY $100 million for cheating on CPE and CPA licensure ethics exams, KPMG’s dual cheating scandals in 2019, PwC Canada phoning it in on internal exams because ain’t nobody got time for that, and KPMG Australia getting fined by the PCAOB for more than 1,100 KPMG Australia partners and staff sharing exam answers. Clearly cheating is not a single-firm issue and regulators are watching.

“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.

Rapson said in a separate letter to the heads of the UK’s accountancy professional bodies that the “severity and repeating nature” of exam cheating has driven the FRC to look deeper into this issue and ask firms to outline the safeguards they have in place to prevent it. The FRC has already talked to firms about this but issued the latest requests “to formalise, deepen and accelerate these discussions” per Rapson’s letter. In other words, the FRC is not buying it when firms say they are monitoring the cheating situation, they want to hear what exactly they’re doing about it.

The seriousness and urgency of the FRC’s request may be related to the most recent EY cheating scandal in which the firm was aware of the cheating and thought slapping some warnings on WBLs not to cheat would be a sufficient anti-cheat measure. As we now know, it was not.

In the course of its inquiry into this pervasive issue the FRC would be wise to consider the words of this source of ours at PwC who detailed why anyone cheats on these things in the first place:

Everybody shares answers. To think that no one does is naive. But be smart about sharing your answers. Don’t do electronic sharing. We pass around the answers the old-fashioned way—on paper, like on a Post-It note—and then shred the paper. We work long hours and are expected to take the same training tests every year. We’re overworked and underpaid, and we don’t have time for that.

Fix the overworked part and maaaaaybe otherwise ethical people will stop cutting corners to get this crap off their plate. Or don’t and just keep fining the firms when it keeps happening, whatever.

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