The UK accountancy watchdog has fined EY UK over £250,000 for breaches to the FRC’s revised Ethical Standards 2019, namely exceeding the 70% fee-cap on non-audit work.
The breach relates to the statutory audit of Evraz plc, for the year ended 31 December 2021.
On top of the quarter of a million pounds fine the firm was reprimanded. EY will also have to provide a root-cause analysis report identifying how the breach happened, and what the Big 4 firm is doing to make sure it doesn’t happen again.
EY UK also paid the costs of the Executive Counsel’s investigation.
Evraz is a multi-national mining group, headquartered in Moscow but incorporated in London and listed as a FTSE 100 company. Its shares have been suspended from trading on the London Stock Exchange since March 2022. EY UK had audited Evraz since it was listed in the UK in 2011 until its resignation as auditor in November 2022, following the imposing of new UK Government sanctions against the Russian Federation in response to the invasion of Ukraine. The FRC pointed out that there is no suggestion that EY has in any way failed to comply with its obligations under applicable sanctions laws.
The Revised Ethical Standard 2019, which reflects the requirements of UK law, imposes restrictions on the amount of non-audit services that an audit firm may provide to a Public Interest Entity. The cap on non-audit work is 70% of the average of the fees paid to the audit firm over the previous three consecutive years. The cap applies at both Network level (i.e. members of the global EY network) and at Firm level (EY UK). EY UK tested the fee ratio at Network level but not at Firm level, and so accepted and carried out non-audit work in breach of the 70% fee cap. This breach was not intentional or dishonest, said FRC.
Claudia Mortimore, Deputy Executive Counsel, said: “The Ethical Standard sets clear limits on the value of non-audit services an auditor can provide. Its aim is to uphold high standards of auditor independence and ensure public confidence in audit.
“In this instance, EY’s systems and controls failed to ensure compliance with the Ethical Standard which led to the fee-cap being breached.
“In addition to the financial sanctions announced, EY is required to report to the FRC on the reasons for the breach and to provide assurance that appropriate measures are in place to avoid any future recurrence.”
