Ernst & Young LLP to pay $10m to settle a regulatory investigation into allegations that it improperly obtained confidential information in pursuit of a contract to audit a public company’s books.
The Securities and Exchange Commission (SEC) also fined four accountants allegedly involved in the misconduct including an Ernst & Young partner, two retired partners and a former chief accounting officer of the unnamed client company who shared the competitive information with them. The four accountants were all suspended from reviewing the financial statements of public companies for periods ranging from one to three years.
Ernst & Young and the four accountants agreed to settle the SEC’s claims without admitting or denying misconduct.
The watchdog found EY firm partner James Herring, and former partners James Young and Curt Fochtmann improperly interfered with Sealed Air’s selection of an outside auditor by asking for and receiving confidential competitive intelligence and confidential audit committee information from the Sealed Air’s then-chief accounting officer, William Stiehl, during the request for proposal process, who was terminated in June 2019, according to a regulatory filing made by the company. In February 2020 the SEC and federal prosecutors were probing concerns that Stiehl rigged the competition to help Ernst & Young win Sealed Air’s multimillion-dollar audit contract.
The SEC’s investigation described frequent contacts between Stiehl and the audit partners. Late in the bidding process, when Ernst & Young was a finalist for the work along with another accounting firm, Stiehl attended an NFL game in Ernst & Young’s suite in Charlotte, N.C., according to the SEC.
SEC official Charles Cain said, “Auditor independence is not merely an obstacle to overcome, it is the bedrock foundation that supports the integrity, transparency, and reliability of financial reporting.
“Auditor independence requires auditors to analyze all of the relevant facts and circumstances from the perspective of the reasonable investor. EY and its partners lost sight of this fundamental principle in their pursuit of a new client. This action further underscores that auditors must apply heightened scrutiny when making independence determinations.”
In response to the investigation, EY said, it is “committed to competing fairly for new business and on the basis of our qualifications and merits,” and has improved training and monitoring to ensure compliance with its request for proposal policies. The company said in a statement, “The matter at issue occurred in 2014; since then we have reinforced our policies and procedures when responding to requests for proposals and have implemented additional training, testing and monitoring processes for compliance with these policies for all professionals involved in pursuits. Integrity and ethics are the cornerstones of our profession and maintaining the highest level of audit quality and independence is our top priority. We are fully committed to the critical role we play in providing independent assurance with respect to our clients’ financial reporting.”
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