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EY UK Sheds Some Pounds Because An Audit Partner Messed Up Big Time

Posted on by Jason Bramwell

The UK’s audit cops were itchin’ to dole out some discipline today, and the butts that were paddled belong to ex-audit partner Mark Harvey and his former employer EY.

The Financial Times reported:

Accounting firm EY has been fined £2.2m and issued with a severe reprimand for failings in its audit of Stagecoach, the London-listed transport company.

The UK’s Financial Reporting Council also imposed a £70,000 fine and a severe reprimand against Mark Harvey, the former head of EY’s Scottish business who was the partner responsible for the review of Stagecoach’s financial statements.

EY and Harvey must also pay almost £600,000 in costs incurred by the regulator.

Mark Harvey

After spending nearly 25 years at EY, the last five of which as EY’s managing partner in Scotland, Harvey noped on out of there in July 2020 to become CFO of car dealer Arnold Clark, according to his LinkedIn profile.

You would think someone in a senior and supervisory position like Harvey would not want to be associated with shoddy audit work that resulted in a “serious lack of competence,” but I guess that wasn’t the case.

The FRC said:

At all material times Stagecoach was a FTSE 250 international transport company, which operated buses, trains, trams and express coaches. 2017 was the first year that EY audited Stagecoach.

The failings admitted by the Respondents [EY and Harvey] relate to three specific areas of the Audit: (1) defined benefit pension scheme obligations; (2) provisions for insurance claims relating to accidents; and (3) an onerous contract provision relating to the East Coast Mainline railway franchise. All three areas of the Audit concerned material balances and had been identified by the Respondents as areas of significant risk requiring a heightened audit response.

The most serious deficiencies in audit work concerned the lack of sufficient evaluation and challenge of the work of management’s and the Respondents’ respective experts, and the associated lack of proper challenge of management about material assumptions underlying the Financial Statements. Whilst it is not alleged that the Financial Statements were in fact misstated, in several material instances, the Respondents failed to obtain sufficient appropriate audit evidence and to apply sufficient professional scepticism in their conduct of the Audit.

Further, the content and extent of the audit documentation which the Respondents were required to prepare was of a low quality which did not record the full extent of the procedures and judgements made.

The breaches of Relevant Requirements were not intentional, dishonest, deliberate or reckless.

Just really, really dumb and/or lazy mistakes that Big 4 auditors shouldn’t be making.

EY fined more than £2m over Stagecoach audit failings [Financial Times]

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Last week, we tried to get the ball rolling on Ernst & Young compensation rumors and while some may chalk up the lack of chatter to “PwC sticker shock,” others claim this is simply standard operating procedure. If you remember last year, eventually Ernst & Young reported some impressive raises that kept pace with P. Dubs but one of Turley’s troops is expecting the worst this year and would like to give a partner a piece of his mind. Unfortunately, he isn’t sure how to do it:

Hello,

By way of introduction, I am a loyal reader of going concern as well as a big four slave in the audit practice. Slavery had begun four years ago at EY and with all the compensation talk going on at other big four firms, I can’t help but to think –

What is a tactful way of telling a partner during the comp talk, “well thank you for that oh so very generous double digit percentage raise (assuming if it’s even double digit), but I am still unhappy because even after this supposed raise, you are still not paying me jack for the amount of contribution and commitment that you demand from me.”

As noted above, I’m a second year senior from an east coast office and my base is still not breaking mid-60s. Seriously, what the f___?

I will be forever grateful if you post my question up for discussion. Thanks so much!!!

Yours,

Angry EY audit senior

There are various directions we can take here so I’ll try to cover a few options before turning it over to you all.

A. Start off with a variation of, “Look, I’m an ungrateful, bitchy auditor. I also have unrealistic expectations and an inflated notion of my self-worth. I’d really appreciate an explanation as to how you can reconcile these traits to this paltry 10-15% raise.”

B. Continue with the slavery narrative.

C. Start questioning leadership at every turn, from challenging Andrew Cuomo to rumored twisting of Senators’ arms. “If this is the type of firm your running, yada yada yada.”

D. Simply ask if E&Y’s raises will beat PwC’s.

Now you may not think these are “tactful” ways to have this conversation but he did sign, “Angry EY Audit Senior.” If I tried to reason with this person, I’d be doing him a disservice. And when is honesty ever not tactful? If you sugarcoat your frustration, the partner will assume you’re a pushover like everyone else. My guess is most partners want you to give it to them straight. If you’re a performer (and something tells me you think you are) than this partner doesn’t want to lose your talent.

Having said all that, not everyone can muster up the courage to ditch the filter in these meetings. If you’ve got better more practical ideas than what I’ve listed, feel free to bestow your sage advice below.