Accounting giant Ernst & Young has been hit with a £3.5 million fine for “extensive” failings in its auditing of train and bus giant Stagecoach.
The failings occurred in the the run up to the collapse of Stagecoach’s East Coast Mainline franchise.
This is just the latest in a string of penalties for E&Y, which has more than 200,000 major clients in 150 countries overseeing the books of household giants such as Coca-Cola, McDonald’s and Amazon.
Watchdog the Financial Reporting Council issued the fine, discounted by 30% to £2.2 million due to EY’s admission of guilt, and a “severe reprimand” to the firm and partner Mark Harvey. He has been fined £100,000, cut to £70,000.
The regulator found that EY’s work had “serious deficiencies” in relation to Stagecoach’s pension obligations, insurance claims, and the East Coast Mainline railway.
Stagecoach and partner Virgin signed a deal in 2015 to run the East Coast line until 2023, but were ditched by transport secretary Chris Grayling in 2018.
They had pledged to pay the government £3.3 billion for running the service, but Grayling said the operator had “got its numbers wrong”. “It overbid and is now paying a price,” he told MPs.
Claudia Mortimore of the FRC said: “The audit failings in this case were extensive and related to a number of fundamental auditing standards.”
EY is already under fire over its audit of the collapsed payment group Wirecard, perhaps Germany’s biggest corporate scandal.
The UK government has pledged to improve the quality of audits done by EY and its peers following a series of past scandals, including the 2016 collapse of BHS, whose auditor PricewaterhouseCoopers was fined £6 million.
It wants to reform the audit market and replace the FRC with a more powerful watchdog after a series of company collapses, but movement on this has been slow
EY said it takes the findings “very seriously” and regrets that it fell short of the standards it expects.
"Whilst it is not alleged that the Financial Statements were in fact misstated, in several material instances the Respondents failed to obtain sufficient appropriate audit evidence," the regulator said.
The FRC said EY will be required to report to the watchdog for a year in respect of audit work in relation to onerous contract provisions.
EY chairman and CEO Carmine Di Sibio claims on the company website: “Our purpose is building a better working world. The insights and quality services we provide help build trust and confidence in the capital markets and in economies the world over.”