TLDR: Boning clients and/or treating them to too many football games is an independence violation
Once again EY is losing a client because someone over there just couldn’t resist banging them which leads us to wonder out loud: what is it with EY and hooking up with clients?
The Telegraph on why EY dropped UK grocery chain Asda:
EY has quit as auditor to Asda amid one of its senior partners starting a romantic relationship with billionaire chief executive Mohsin Issa, The Telegraph can reveal.
EY has confirmed that the partner in question has left the firm, and that she had never carried out any work relating to Asda’s audit. Filings show she resigned as a partner the day after EY resigned as Asda’s auditor. The firm said its exit was related to a restructure of the Issas’ businesses.
Via lawyers, the EY partner herself said she had done no work for Asda and had complied with all relevant policies. She said the firm had told her she had made all appropriate disclosures to its ethics and compliance teams throughout her career.
Well at least it wasn’t someone working directly with the client this time. In 2014, real estate investment trust Ventas had to fire EY when the company discovered an inappropriate relationship between an audit partner and the company’s former chief accounting officer and controller. That’s one person who held both titles, not a polyamory situation. Wouldn’t that have been fun! Would the firm catch a 2x multiplier bonus on independence violation penalties from the SEC if a single auditor is hooking up with two people in the client’s accounting department?
In 2016, EY agreed to pay the SEC $9.3 million to settle charges that two of the firm’s auditors got “too close to their clients on a personal level.” One of these was the Ventas situation, the other was a partner who really loved sports tasked with winning an unhappy client back by “developing” and “mending” EY’s relationship (internally, the firm said the client was a “troubled account”). The latter went on to incur approximately $109,000 in entertainment-related expenses—meals, sports tickets, and related travel and lodging—which he billed to the client’s charge code. As far as we know the sports-loving partner was merely a BFF to the client’s CFO and not banging him. Though they did have a lot of sleepovers and vacations together.
From an SEC press release dated Sept. 19, 2016 that lumps together Ventas and the other partner in one juicy $9.3 million settlement:
SEC investigations found that the senior partner on an engagement team for the audit of a New York-based public company maintained an improperly close friendship with its chief financial officer, and a different partner serving on an engagement team for the audit of another public company was romantically involved with its chief accounting officer. Ernst & Young misrepresented in audit reports issued with the companies’ financial statements that it maintained its independence throughout these audits.
“These are the first SEC enforcement actions for auditor independence failures due to close personal relationships between auditors and client personnel,” said Andrew J. Ceresney, Director of the SEC’s Division of Enforcement, in that press release. “Ernst & Young did not do enough to detect or prevent these partners from getting too close to their clients and compromising their roles as independent auditors.”
Don’t shit where you eat!