Accounting scandals

Ernst & Young has been in accounting scandals - Bank of Credit and Commerce International (1991), Informix Corporation (1996), Sybase (1997), Cendant (1998), One.Tel (2001), AOL (2002), HealthSouth Corporation (2003), Chiquita Brands International (2004), Lehman Brothers (2010), Sino-Forest Corporation (2011) and Olympus Corporation (2011).

SEC barred the firm from accepting new clients for six months

In 2004, Ernst & Young was punished for forming highly profitable business with one of its audit clients. As a result, the firm was barred by the SEC from accepting any new publicly traded companies as audit clients for six months. [47]

Equitable Life (2004)

In April 2004, Equitable Life, a UK life assurance company, sued EY after nearly collapsing but abandoned the case in September 2005. EY described the case as "a scandalous waste of time, money and resources for all concerned."[48]

Bally Total Fitness (2008)

Following allegations by the Securities and Exchange Commission that EY had committed accounting fraud in its work auditing the books of Bally Total Fitness, EY reached two settlements in 2008, including a fine of $8.5 million.[49]

Anglo Irish Bank (2009)

In 2009, in the Anglo Irish Bank hidden loans controversy, EY was criticised by politicians[50] and the shareholders of Anglo Irish Bank for failing to detect large loans to Sean FitzPatrick, its Chairman, during its audits. The Irish Government had to subsequently take full ownership of the Bank at a cost of €28 billion.[51][52] The Irish Chartered Accountants Regulatory Board appointed John Purcell to investigate.[53] EY said it "fundamentally disagrees with the decision to initiate a formal disciplinary process" and that "there has been no adverse finding made against EY in respect of the audit of Anglo Irish Bank."[54]

Sons of Gwalia (2009)

In 2009, EY, the former auditors of Sons of Gwalia, agreed to a $125m settlement over their role in the gold miner’s collapse in 2004. Ferrier Hodgson, the company's administrator, had claimed EY was negligent over the accounting of gold and dollar hedging contracts. However, EY said that the proposed settlement was not an admission of any liability.[55]

Akai Holdings (2009) and Moulin Global Eyecare (2010)

In 2009, EY agreed to pay US$200m out of court to settle a negligence claim by the liquidators of Akai Holdings.[56] Separately the firm was alleged of falsifying and doctoring documents it presented to defend against the negligence claim by Akai's liquidators.[57] In a separate lawsuit, a former EY senior partner from 1984 to 1991, Cristopher Ho, and his listed company, Grande Holdings, paid over US$100m to Akai creditors to settle Akai's liquidators' claim that Ho conspired with Ting of stripping assets from Akai.[58][59] Police raided the Hong Kong office and arrested an EY partner who had been an audit manager on the Akai account from December 1997, although audit documents had been doctored dating back to 1994.[57] Akai was said to be the firm's largest client for most of the 1990s from Hong Kong.[60] The EY partner for the Akai account between 1991 and 1999, David Sun Tak-kei, faced no charges and went on to become co-managing partner for EY China.[57] A few months later EY settled a similar claim of up to HK$300m from the liquidators of Moulin Global Eyecare, an audit client of the Hong Kong affiliate between 2002 and 2004.[56] The liquidators described the Moulin accounts as a "morass of dodginess".[56]

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Lehman Brothers (2010)

The Valukas Report issued in 2010[61] charged that Lehman Brothers engaged in a practice known as repo 105 and that EY, Lehman's auditor, was aware of it. EY was alleged of professional malpractice regarding the lack of disclosure of Lehman's repo 105 practice in Lehman's public filings.[62] New York prosecutors announced in 2010[63] that they have sued the firm. David Goldfarb, a Lehman CFO who concocted the repo 105 balance sheet window dressing technique was a former senior partner of EY.[62] EY said that its last audit of Lehman Brothers was for the fiscal year ending 30 November 2007 and that Lehman’s financial statements were fairly presented in accordance with Generally Accepted Accounting Principles.[64][65][66] In March 2015, EY settled Lehman-related lawsuits with municipalities in New Jersey and California.[67]

Standard Water (2013)

EY Hong Kong resigned from the audit of Standard Water on when it emerged that although EY Hong Kong had signed off the audit, it had been effectively outsourced to the affiliate in mainland China, which had received 99.98% of the fee.[68] This was important because shareholders have less confidence in mainland auditors and because audit papers on the mainland are subject to state secrecy laws and can be withheld from outside regulators.[68] EY's quality and risk management leader (Greater China) even testified in the Court of First Instance that he was not sure whether there was a formal agreement covering the relationship between the two EY entities.[68] The court case in 2013 came as US regulators were taking an interest in similar cases of accounting fraud in mainland China.[68]

Tax avoidance

In 2014 tax arrangements negotiated by EY for The Walt Disney Company, Koch Industries, Skype, and other multinational corporations became public in the so-called Luxembourg Leaks. The disclosure of these and other tax arrangements led to controversial discussions about tax avoidance.[69][70][71]

Weatherford Audit

In October 2016, EY settled with the SEC because they were unable to detect financial statement fraud that was committed by the Weatherford tax department.[72] Weatherford misstated their financial statements by manipulating the income tax line item in their financials. EY was Weatherford's independent auditors when the fraud was perpetrated.[73]

Ernst & Young ShinNihon reprimanded and fined by regulator (2015)

EY's member firm in Japan, Ernst & Young ShinNihon, was fined ¥2.1 billion (US$17.4 million) for failing to spot irregularities during audit of its client Toshiba, which was Japan's worst accounting scandal in years. The firm was also suspended from taking up new business for three months. An official from Japan's Financial Services Agency (FSA) described that "[t]here was a grave breach of duty". The firm's CEO and chairman, Koichi Hanabusa stepped down the following month to take responsibility and monthly salaries for 19 employees were cut from 20 per cent to 50 per cent.[74][75] In an unusual move, the FSA publicly named seven accountants involved in the audit who were said of failing to exercise due caution and signing off on false financial documents.[75] The FSA also said the "firm’s operations were deeply improper".[75] ShinNihon, at the time, was Japan's biggest accounting firm, with about 3,500 certified accountants and more than 4,000 clients.[74] Ernst & Young ShinNihon audited about 960 listed companies in Japan, the most among the Big Four, as reported in 2015.[76] Ernst & Young ShinNihon had audited Toshiba for over 60 years and the firm had around 70 staff serving Toshiba before the accounting scandal broke.[76]

Ernst & Young Hong Kong and WoSign

In October 2016, Mozilla stopped accepting WebTrust audits from Ernst & Young Hong Kong[77] due to their failure "to detect multiple issues they should have detected" during their audits of WoSign.[78]