Ernst & Young to pay $11.8 mn over failed audits

E&Y, one of the global "big four" accounting firms, had failed to detect fraud for more than four years, SEC said

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

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

The SEC said 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 scrutinise 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 $10.8 million in disgorgement and pre-judgment interest and a penalty of $1 million.