EY’s US partners flouted conflict of interest rules, regulator says

One in three of EY’s US audit partners has flouted its policies for preventing conflicts of interest, the industry regulator said on Monday, and the firm had failed to address the issue more than a year after it was discovered.

Among lower-level managers the rate of non-compliance with its financial disclosure rules was even higher, at almost half, according to a Public Company Accounting Oversight Board report.

The revelations come on the heels of other ethics scandals at the Big Four firm, including the discovery of widespread cheating on professional exams, which led to a $100mn settlement earlier this year.

EY, which audits about 15 per cent of US public companies, requires staff to adhere to numerous compliance rules designed to ensure the independence of their work. Its own spot checks in 2018 found that 33 per cent of partners and 46 per cent of managers certified they had made the proper financial disclosures without actually doing so.

The issue was reported to the PCAOB as part of its annual inspection by the regulator. It was kept out of the inspectors’ public report, however, to give EY time to address the issue. The PCAOB only makes such deficiencies public if they are not fixed within a year.

“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,” the PCAOB said.

EY said it had made progress but still had “more work to do” to fix the issue.

“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.”