Ernst & Young Update
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Four major accounting firms Ernst & Young and three audit partners Expenses settled Sued by the US Securities and Exchange Commission for alleged misconduct in a relationship with the chief accounting officer of a large American company.
Ernst & Young agreed to pay US$10 million to the US Securities and Exchange Commission to resolve allegations of misconduct in audit independence related to partner James Herring and former partners James Young and Curt Fochtmann. The SEC also reached a settlement with William Stiehl, who was fired by the bubble packaging manufacturer Sealed Air in the agency’s investigation in 2019.
The US Securities and Exchange Commission stated that in 2014, Ernst & Young received a notice from Stiehl about Sealed Air’s selection of a new accounting firm’s solicitation process, adding that Ernst & Young eventually received US$13 million from the company in 2015.
The US Securities and Exchange Commission stated that Stiehl allowed Ernst & Young to help draft its bid request and then arranged for Herring to meet with the company at least one month before inviting other companies.
According to the US Securities and Exchange Commission, an internal Ernst & Young case study written shortly after Ernst & Young won the Sealed Air business called the visit a “leading advantage that no other company has achieved.”
The SEC stated that exclusive access also allowed Stiehl to add more than $1 million in global tax services to the company’s commercial proposals.
The regulator stated that Ernst & Young’s leadership should be aware of the actions taken by the partners to win business, and that the actions violated the auditor’s independence rules. Sealed Air exposed the alleged misconduct in 2019 and fired Ernst & Young and Stiehl.
“Ernst & Young and its partners ignored this basic principle when looking for new customers,” said Charles Cain, an enforcement officer at the US Securities and Exchange Commission.
Ernst & Young said in a statement that after the incident, it has “strengthened” its procedures for responding to bids. Sealed Air did not immediately respond to a request for comment.
Herring, Young, and Fochtmann agreed to pay fines of $50,000, $25,000, and $15,000, respectively. Steele will pay $51,000. As part of the settlement, no one admitted wrongdoing, and all four can reapply as auditors.
The SEC has previously imposed sanctions on the four major companies for allegedly violating the auditor’s independence rules. In 2019, PwC Paid US$7.9 million was used to damage the independence of its audit of more than a dozen companies.