Ernst & Young to pay US$11.8 mn over failed audits

Global accounting firm Ernst & Young will pay US$11.8 million to resolve allegations it failed to uncover deceptive tax practices at an oil services company, the US market regulator announced Tuesday.

The announcement follows last month's settlement between the Securities and Exchange Commission and the oilfield services firm Weatherford International, which the SEC fined US$140 million for fraudulently lowering its year-end tax provisions.

The SEC said Tuesday that Ernst & Young, one of the global "big four" accounting firms, had failed to detect the fraud for more than four years.

Craig Fronckiewicz, the Ernst & Young partner who coordinated the audits, and Sarah Adams, a former tax partner who was part of the audit team, both agreed to suspensions from handling the accounting of SEC-regulated firms to settle charges of having ignored "significant red flags" during the Weatherford audits and reviews, the SEC said in a statement.

"The audit team was aware of post-closing adjustments that Weatherford was making to significantly lower its year-end provision for income taxes each year, but it relied on Weatherford's unsubstantiated explanations instead of performing the required audit procedures to scrutinize the company’s accounting," the SEC said in a statement.

Ernst & Young, which reached the settlement without admitting or denying the SEC's allegations, will pay US$10.8 million in disgorgement and pre-judgment interest and a penalty of US$1 million.