EY Hit With $3M Ethics Penalty; PCAOB Finds Flaws in 46% of EY Audits
Nov. 15, 2023
Texas hits the accounting firm over ethics violations, while EY reveals that flaws were found in almost half of its audits that the PCAOB examined in 2022.
As if accounting giant EY didn’t already have enough trouble on its plate, it was recently hit with a $3 million penalty for ethics violations on Nov. 9.
The fine, levied by the Texas State Board of Public Accounting, is in addition to the $100 million penalty against EY levied in June 2022 by the Securities and Exchange Commission (SEC). It was the largest penalty the SEC has ever assessed against an audit firm.
The Texas assessment comes as EY preemptively disclosed the Public Company Accounting Oversight Board (PCAOB) had found flaws in 46% of 54 EY audits that the watchdog agency examined in 2022, which generally covers its audits of 2021.
That rate apparently was far worse than those of EY’s major competitors. Without breaking out the results by firm, the PCAOB announced in July that it had detected flaws in 30% of examined audits performed by the U.S. practices of the Big Four accounting firms in 2021. The previous year, EY’s U.S. arm was deficient in only 21% of its examined audits.
EY’s revelation was unusual in that it came ahead of the PCAOB’s announcement of its complete audit findings for 2022, which is expected in the coming weeks. That same day, EY released information on an ongoing restructuring of its audit practice.
The actions against EY largely relate to cheating on professional examinations, especially ethics exams. In particular, the SEC had said last year that from 2017 to 2021, 49 EY audit professionals sent and/or received answer keys to CPA ethics exams. In addition, the SEC said, hundreds of other audit professionals cheated on continuing professional education courses, including those addressing the ethical obligations of certified public accountants.
EY’s Friday announcement came in the form of a 30-page document titled “Our commitment to audit quality.” In an introduction, two EY executives — Julie Boland, U.S. chair and managing partner, and Dante D’Egidio, U.S. vice chair-assurance — called the flawed-audit rate “unacceptable.”
They wrote that the strategy behind the audit-practice restructuring “is focused on simplifying and standardizing our audit approach, building centralized teams to provide audit support on various topics, and embedding a continuous improvement mindset in our culture.”
The EY executives further said the firm expects the PCAOB’s examination of 2022 audits to show some improvements attributable to the restructuring. But, they noted, “it will take time before all of the audit quality enhancements we are making are fully reflected in the inspection findings.”
[CFO magazine]
