James Doty, chairman of the Public Company Accounting Oversight Board © Bloomberg
Ernst & Young’s Indonesian firm has agreed to pay $1m to the US auditing watchdog to settle allegations it fell short of auditing standards, making it the latest affiliate of a “big four” firm to be sanctioned.
The Public Company Accounting Oversight Board issued the penalty against KAP Purwantono, Suherman & Surja and sanctioned two of its members for signing off on an audit despite concerns from a US-based partner reviewing the audit. The partner raised concerns that the client, a telecommunications company, had failed to provide enough evidence to support its accounting of leases for space on its cellular towers.
PCAOB also found that the auditors created dozens of new work audit documents after the fact to provide to PCAOB inspectors who were reviewing the 2011 audit. KAP and the two members settled without admitting or denying wrongdoing.
“In their haste to issue audit reports for their client, the firm and two partners shirked their fundamental duty to obtain sufficient audit evidence,” Claudius Modesti, director of the PCAOB’s enforcement division, said in a statement. “Matters were made much worse when EY Indonesia and the engagement partner did not co-operate with the board’s inspection and investigation,” he said.
The PCAOB has highlighted concerns about the oversight the big four accounting firms provide for their global network of affiliated firms. In December, PCAOB issued a record $8m penalty against the Brazilian affiliate of Deloitte for what it then described as its “most serious” finding of misconduct.
PCAOB issued a deficiency report in 2013 for KAP finding shortfalls in its audit of a client’s accounting for certain leases. The deficiency report does not identify the client but notes KAP had only identified one client under PCAOB oversight. Two other reviews of KAP by PCAOB in 2011 did not identify any problems.
Ernst & Young, the global firm, was previously fined $2m and four then-current and former audit partners were sanctioned in 2012 for violating PCAOB rules in its audit of Medicis Pharmaceutical Corp.
EY said in a statement, “Audit quality is EY’s highest priority. This conduct at issue here goes against EY’s Global Code of Conduct, culture, values, policies and training.”
“Since the events in this matter, we have continued to strengthen the rigor in our global audit processes and policies….We take our responsibilities very seriously and remain committed to delivering the highest quality work consistent with professional standards,” the firm added.
James Doty, PCAOB chairman, has already served a year beyond his tenure and it is not clear whether the incoming Securities and Exchange Commission under the Trump administration will reappoint him. Mr Doty has pushed for greater transparency in the auditing profession, often clashing with the big four firms and Congress.
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