EY to Split Accounting and Consulting Businesses

The penalty paid by EY is twice the sum that KPMG, another big auditing firm, paid in 2019 to resolve an investigation by the Securities and Exchange Commission into similar allegations of cheating by auditors on internal training exams.

Another area of concern for the S.E.C. is the issue of auditor independence. Regulators want to make sure that an accounting firm’s review of a company’s financial records is not compromised by other consulting, advisory or lobbying work it might do for the company.

In recent years, the Big Four accounting firms — Deloitte, EY, KPMG and PricewaterhouseCoopers — have drawn scrutiny for lobbying for tax changes that have benefited corporate clients they have provided both auditing and consulting services. In some instances, the accounting firms have employed consultants who have devised tax-saving strategies for corporate clients while auditors are then responsible for blessing the client’s bookkeeping.

Regulators began taking a closer look at the affairs of accounting firms about two decades ago. The collapse of Enron in 2001 spotlighted the role of its auditor Arthur Andersen, which had helped perpetrate accounting fraud at the energy giant. Federal prosecutors later filed criminal charges against Arthur Andersen. The firm no longer exists.

In the aftermath of Enron’s collapse and other big corporate frauds, Congress passed legislation establishing the Public Company Accounting Oversight Board, which sits within the S.E.C. but brings its own enforcement actions against auditing firms.

Article source: https://www.nytimes.com/2022/09/08/business/ey-ernst-young-split.html