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November 29, 2022

EY Is Haunted By Some Lingering Independence Problems

an Ernst & Young umbrella

Yesterday the PCAOB made public additional portions of EY’s 2018 inspection report “because the firm did not address certain quality control issues to the satisfaction of the Board within the 12 months following the date of the report.” EY’s 2018 PCAOB inspection report is dated April 28, 2020 and in it, the Board said EY had made marginal improvements in audit quality from the year prior. The Board did not mention these conflicts of interest at that time as they wanted to give the firm a chance to improve it to the PCAOB’s satisfaction before telling everyone about it. The firm did not and so here we are talking about it.

The following has been added to Part II: Observations Related To Quality Control on page 23 of the report:

The inspection results indicate that the firm’s system of quality control does not provide reasonable assurance that the firm and its personnel will comply with the firm’s policies and procedures with respect to independence-related regulatory requirements. (QC 20.04, .09, and .10) The firm conducts periodic audits of a sample of its personnel to monitor compliance with certain of its independence policies. In the audits conducted during the period ended March 31, 2018, the firm identified that 33 percent of the partners and 46 percent of the managers who were audited had not reported, as of the dates of their confirmations of compliance with firm policy, financial relationships that were required to be reported in accordance with the firm’s policies [emphasis ours]. These high rates of non-compliance with the firm’s policies, which are designed to provide compliance with applicable independence regulatory requirements, provide cause for concern, especially considering that these individuals are required to certify on a quarterly basis that they have complied with the firm’s independence policies and procedures.

Here’s the whole expanded report on Scribd if you’re interested.

In their write-up about this fresh addition to EY’s otherwise mediocre 2018 inspection report, FT grabbed this quote from EY: “Following the 2018 inspections report, we implemented and communicated to our employees changes and enhancements in policies, processes, consequences, communications and training to increase compliance with the reporting requirements,” it said. “We remain squarely focused on the continued strengthening and enhancement of our quality controls.”

EY’s US partners flouted conflict of interest rules, regulator says [Financial Times]

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