editor’s note: April 11 Ernst & Young Says it will scrap plans dubbed “Project Everest” to spin off its consulting and auditing services into separate firms after opposition from partners Ernst & YoungIts U.S. operations account for 40% of the company’s global revenue.
Secondyou just can’t take a break.The accounting and consulting giant is being sued by the company’s executives for $2.7 billion Network Management Committeea London-listed hospital operator that it had audited and went into receivership after understatement of $4 billion in debt. Ernst & Young is under investigation by the Financial Reporting Council (RC), a U.K. regulator; the company denies allegations of negligence by managers. Its plan to unwind its consulting business, code-named “Project Everest,” which has been constrained by its inability to work with audit clients, has been called into question amid objections from a group of U.S. partners.And on March 31, its German branch received its toughest penalty ever APAS, Germany’s accounting watchdog, which included a 500,000-euro ($548,000) fine and, worse, a two-year ban on auditing new listing clients in the country. It’s a financial hit to the company, and an even bigger reputational hit.
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APASThe decision was made after a three-year investigation Ernst & YoungIts role in the demise of fintech darling Wirecard turned into Germany’s biggest post-war corporate scandal. Ernst & Young For a decade, Wirecard remained healthy until the company collapsed in 2020 amid allegations of massive financial fraud. APAS Now says it thinks it “proved” between 2016 and 2018 Ernst & Young The duty of care was breached during the audit of Wirecard and Wirecard Bank. Five current and former employees were also fined between 23,000 and 300,000 euros. Seven other employees who were also under investigation escaped punishment by surrendering their auditor licenses. In a statement, the company said, “Ernst & Young Germany fully cooperates APAS throughout the investigation. We regret that Wirecard’s collusion was not detected sooner, and we have learned important lessons from it. “
After the turmoil of recent years Ernst & Young Really have been trying to get better at spotting hoaxes. By 2021, it said it would invest $2 billion over three years in improving audits, including upgrading its technology to better detect fraud. But no auditor is likely to get things right every time.In fact, Wirecard and Network Management Committee Get to the heart of what is known in auditing as the “expectation gap.” Auditors insist their services cannot be considered a guarantee that the accounts are true, noting that sophisticated fraud is inherently difficult to detect. It is not the only auditor embroiled in controversy. Deloitte fined £15m ($19m) by UK government in 2020 RC There have been “serious and sequential failures” in an audit of business software company Autonomy. life valueA U.S. technology company that bought Autonomy in 2011 has claimed its target company falsified its books.
As far as regulators are concerned, they believe that auditing can be improved. They try to increase competition. In Europe, for example, companies have to rotate their auditors, usually after ten years. Yet despite these efforts, auditing remains a comfortable oligopoly. The so-called “Big Four” – Deloitte, Ernst & Young, KPMG and PwC——Audit almost all large European and American listed companies together, which weakens the enthusiasm for investment audit quality. For example, Ernst & Young Currently auditing 12 of 40 companies Daxthe German blue chip index, according to german economics weekly,Business weekly. These include giants such as Deutsche Bank and Volkswagen. its main competitor, PwC, KPMG and Deloitte, working for 12, 10 and 5 Dax index company, respectively.
How many next year Dax index Companies will decide whether to extend the terms of their respective auditors.Three engineering firms, Siemens, Siemens Energy and Siemens Healthineers, have said they will end their relationship with Ernst & Young, although this is also related to the obligation to rotate auditors.Other statutory clients requiring new auditors will not be able to switch to Ernst & Young Because of the ban, even if they wanted to – given the damaging publicity, they probably wouldn’t.
Ernst & YoungCompetitors will be watching the consequences closely. And so will its partners elsewhere in the world. In fact, like other global accountants, Ernst & Young Operating a franchise-like structure, with separate partnerships in each country, does not insulate the wider network from reputational damage.As for Ernst & Young Germany, which remains keen on the Everest project. Parting ways with the disgraced audit arm cannot come fast enough for the company’s German consulting business. ■
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