Business Ethics

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[40 MARKS] Read the case study below and answer the questions that follow. Ernst \& Young to Pay $100 Million Penalty for Employees Cheating on CPA Ethics Exams and Misleading Investigation: Largest Penally Ever Imposed by SEC Against an Audit Firm The Securities and Exchange Commission today charged Ernst \& Young LLP (EY) for cheating by its audit prolessionals on exams required to obtain and maintain Certified Public Accountant (CPA) licenses, and for withholding evidence of this misconduct from the SEC's Enforcement Division during the Division's investigation of the matter. EY admits the facts underlying the SEC's charges and agrees to pay a $100 million penally and undertake extensive remedial measures to fix the firm's ethical issues. -This action involves breaches of trust by gatekeepers within the gatekeeper entrusted to audi many of our Nation's public companies. If'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. "And it's equaly shocking that Emst \& Young hindered our investigation of this misconduct. This action should serve as a clear message that the SEC will not tolerale integrity fallures by independent auditors who choose the easier wrong over the harder right:" EY admits that, over multiple years, a significant number of EY audit professionals cheated on the ethics component of CPA exams and various continuing professional education courses required to maintain CPA licenses, including ones designed to ensure that accountants can properfy evaluate whether clients' financial statements comply with Generally Accepted Accounting Principles. EY further admits that during the Enforcement Division's investigation of potential cheating at the firm, EY made a submission conveying to the Division that EY did not have current issues with cheating when, in fact, the firm had been informed of potential cheating on a CPA ethics exam. EY also admits that it did not correct is submission even after it launched an internal investigation into cheating on CPA ethics and other exams and confrmed there had been cheating, and even after its senior lawyers discussed the matter with members of the firm's senior management. And as the Order finds, EY did not cooperate in the SEC's investigation regarding its materially misleading submission. In addition to paying a $100 million penality, the Order requires EY to engage in extensive undertakings, including retaining two separate independent consultants to help remediate its deficiencies. One consultant will review the firm's policies and procedures relating to ethics and integrity. The other will review EY's conduct regarding its disclosure falures, including whether any EY employees contributed to the firm's falure to correct is misleading submission. The SEC will not permit the submission of misleading information or any action that delays or frustrates our mandate to protect investors and our markets," said Melissa R. Hodgman, Associate Director of the SEC's Enforcenent Division. "Emst \& Young faces significant sanctions and extensive remediation to ensure that its culture and conduct meet the ethical standards required of those responsible for the integrity of our capital makets." The Order finds that EY violated a Public Company Accounting Oversight Board (PCAOB) nule requiring the firm to maintain integrity in the performance of a professional service, committed acts discreditable to the accounting profession, and falled to maintain an appropriate system of quality control. EY has admitled the facts undertying these findings and acknowledged that its conduct violated the integrity standard and provides a basis for the SEC to impose remedies against the firm pursuant to Sections 4C(a)(2) and (a)(3) of the Exchange Act and Rules 102(e)(1)(i) and (iii) of the Commission's Rules of Practice. The SEC's investigation, which is continuing, has been conducted by lan Rupell and supervised by Rami Sibay. The SEC thanks the PCAOB for its assistance in this matter. US SEC Washington D.C., (2022). Emst \& Young to Pay $100 Million Penalty for Employees Cheating on CPA Ethics Exams and Misleading Investigation: Largest Penalty Ever Imposed by SEC Against an Audit Fim. (online). Avalable at Answer ALL the questions in this section which are based on the case study above. QUESTION 1 Based on your knowledge of the concept of business ethics and your studying of this case, explain how did the actions of Ernst \& Young violate the principles of professional conduct and integrity in the accounting profession