EY aims to shake up US audit business after ‘unacceptable’ number of flaws

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Regulators discovered flaws in the work of EY’s US audit practice in almost half the spot checks they carried out, the firm said on Friday as it promised to shake up the business.

The Big Four firm took the unusual step of revealing annual inspection results ahead of their official publication by the Public Company Accounting Oversight Board, saying the rate of deficiencies found by regulators was “too high”.

The PCAOB had examined 54 audits carried out by EY US in 2022 for its latest round of inspections and found flaws in 46 per cent of them, the firm said.

That represented a significant deterioration from the previous year, when deficiencies were found in 21 per cent of inspected audits, and the poor performance had continued into the current year, the firm indicated.

Disclosing aggregate numbers in July, the PCAOB said it found flaws in 30 per cent of the audits carried out by the US arms of the Big Four. These latest figures suggest EY’s performance is significantly worse than its rivals.

“This rate of findings does not reflect our high standards and is unacceptable to us,” EY US chair Julie Boland and vice-chair Dante D’Egidio said in a statement.

The firm was restructuring the audit practice to centralise decision-making and deploy new technology to try improve quality, they said: “That strategy is focused on simplifying and standardising our audit approach.”

D’Egidio was appointed to run the audit business earlier this year, replacing John King, who ran it for the previous four years and is now an adviser to Boland.

The PCAOB was set up after the collapse of the energy group Enron to check the quality of audit work and protect investors. EY audits over 1,000 US-listed companies — a market share of more than 14 per cent — and more than any other firm, according to Ideagen Audit Analytics.

PCAOB chair Erica Williams said earlier this year the number of deficiencies found in audit work was rising to “completely unacceptable” levels across the industry, and firms should no longer hide behind the disruptions caused by Covid as excuses.

EY is also braced for poor results from inspections of its non-US businesses, the Financial Times reported in July.