One of the most well-known audit and accounting firms in the private funds industry was charged by the US Securities and Exchange Commission (SEC) for illegally lobbying congressional staff on behalf of two unnamed companies whose books it audited.
Ernst & Young will pay some $4 million to settle charges it violated auditor independence rules that require firms to maintain their objectivity and impartiality with clients.
The SEC said a lobbying subsidiary of Ernst & Young, Washington Council EY, sent letters and urged lawmakers to pass legislation favorable to the business interests of two Ernst & Young audit clients. Consequently Ernst & Young became an advocate for two of its clients despite calling itself “independent” in the two companies’ audited financial statements, the SEC said.
“Auditor independence is critical to the integrity of the financial reporting process. When an auditor acts as an advocate for its audit client, that independence is compromised,” said in a statement Scott Friestad, associate director in the SEC’s Division of Enforcement.
The SEC said Ernst & Young had a written independence policy but failed to provide Washington Council EY with formal, in-person training on the policy.
“We regret these instances that arose many years ago and are pleased to put this matter behind us,” Ernst & Young said in its own statement.