The Financial Reporting Council has written to auditors seeking assurance that professional exam cheating could not happen in the UK.
Its letter follows revelations that three of the ‘big four’ accounting firms have been sanctioned for cheating in professional exams.
These include incidents at big four accounting firms Ernst & Young LLP, PricewaterhouseCoopers LLP, and KPMG LLP.
In June, E&Y was ordered to pay US$100mln in penalties after its employees cheated on ethics exams required to maintain Certified Public Accountant licences.
The auditor was also pulled up for withholding evidence relating to the incidents.
It eventually admitted that a “significant number” of its audit professionals had evaded the ethics component of CPA exams spanning several years.
Perhaps the most egregious example related to cheating on exams designed to test whether employees could ensure financial statements comply with generally accepted accounting principles.
“It’s simply outrageous that the very professionals responsible for catching cheating by clients cheated on ethics exams of all things,” said Gurbir Grewal, director of the Securities and Exchange Commission’s enforcement division.
“This action should serve as a clear message that the SEC will not tolerate integrity failures by independent auditors who choose the easier wrong over the harder right.”
The FRC said it was “deeply concerned” about these events and the “potential impact” they could have on audits in Britain.
The body said it had written to top-tier auditors and professional qualifying bodies, urging them to establish and “maintain a system of quality control” to ensure personnel comply with standards and regulations.
In a letter to chief executives, the council said it had decided to formalise and deepen discussions with audit firms, which have so far verbally consulted with employees to understand what controls were in place to mitigate such risks.
Auditors are required under the Companies Act 2006 to have rules in place to ensure they comply with set standards for professional qualifications.
They must also have adequate arrangements to monitor continued compliance.
Sarah Rapson, executive director of supervision at the FRC, asked firms to formally set out prevention and detection controls before the council.
She is asking them to outline invigilation requirements and other controls they have in place to ensure the integrity of exams and testing of students and members.
The FRC has asked firms to provide these assurances by 22 July.