Sanctions against Ernst & Young LLP and Mr Christopher Voogd
News types: Investigations
Published: 14 April 2025
This Press Notice concerns the outcome of an investigation into the relevant Statutory Audit Firm and Statutory Auditor*. It would not be fair to treat any part of this announcement as constituting or evidencing an investigation into, or findings in respect of the conduct of, any other persons or entities.
The Executive Counsel of the Financial Reporting Council (FRC) has issued a Final Settlement Decision Notice under the Audit Enforcement Procedure against Ernst & Young LLP (EY) and Christopher Voogd (the audit engagement partner) and imposed sanctions in relation to the investigation of the Statutory Audit of the financial statements of Stirling Water Seafield Finance plc (SWSF) for the year ended 31 December 2019.
By undertaking the audit, EY exceeded the maximum ten year engagement period for audits of a Public Interest Entity (PIE) without renewal via a qualifying public tender. This was in breach of the requirements in company law and the FRC’s Revised Ethical Standard 2016 (Ethical Standard), commonly referred to as the Mandatory Firm Rotation (MFR) requirements. Both EY and Mr Voogd failed to ensure that appropriate procedures regarding the continuance of the audit engagement had been followed in breach of the International Standards for Auditing (ISAs). EY also failed to comply with its quality control obligations in relation to independence requirements, in breach of the International Standard on Quality Control (UK) (ISQC 1).
The sanctions are:
EY:
A financial sanction of £500,000, discounted for admissions and early disposal to £325,000, and non-financial sanctions comprising:
- A published statement in the form of a severe reprimand;
- A declaration that the audit report signed on behalf of EY did not satisfy the relevant requirements; and
- A root-cause analysis report to be prepared and presented to the FRC identifying the reasons for the breach, actions taken since and any further remedial action proposed by the FRC to be implemented as necessary.
Christopher Voogd:
A financial sanction of £50,000, discounted for admissions and early disposal to £32,500, and non-financial sanction comprising:
- A published statement in the form of a severe reprimand; and
- A declaration that the audit report signed by Mr Voogd did not satisfy the relevant requirements.
EY has also paid the costs of Executive Counsel’s investigation.
SWSF is a financing company, which is part of a group of companies and is a wholly owned subsidiary of a UK parent company. It raises funds for other group companies by the issue of bonds which have been admitted to trading on the London Stock Exchange since July 2002.
The purpose of the MFR requirements is to ensure the Statutory Audit firm’s independence, and the perception of independence, by either rotating off a PIE audit engagement after ten years or taking part in a public tender to retain the audit. EY audited SWSF from the financial year ended 31 December 2009 until its resignation as auditor in April 2021, at which point its tenure had exceeded ten years. Mr Voogd and EY failed to form an appropriate conclusion as to the MFR requirements that applied to the audit and therefore failed to ensure that the auditor’s report was appropriate in all the circumstances. This was in breach of the relevant ISAs. There were also significant firm level failings concerning MFR. EY did not establish adequate policies and procedures to accumulate and communicate information about the duration of the engagement. EY’s policies did not therefore provide it with reasonable assurance that the firm had maintained independence, or allow it properly to assess whether the conditions for the duration of the audit engagement were complied with before continuing with the engagement. This was in breach ISQC 1 (now succeeded by International Standard on Quality Management (UK) 1). The breaches were not dishonest, intentional or reckless.
EY identified and then reported the ethical breach of MFR to the FRC in November 2021. It has already taken steps to prevent recurrence and, as part of the sanctions, will undertake a root-cause analysis and agree any further necessary remedial action with the FRC.
Jamie Symington, FRC Deputy Executive Counsel, said:
“Mandatory firm rotation is a clear requirement for auditors underpinned by company law and the FRC’s Revised Ethical Standard. It is an integral legal safeguard to provide assurance that auditors are demonstrably independent which supports trust and confidence in UK corporate reporting and audit.
In this case, there were significant failings in relation to mandatory firm rotation requirements at both the engagement and firm level during the continuance stage, which led to EY carrying out audit work despite being ineligible. It highlights the importance of the firm having adequate quality control standards under ISQC 1, as now succeeded by ISQM 1.”
Read the Final Decision Settlement Notice.
*Defined terms in this press notice refer to terms defined in the FRC’s Audit Enforcement Procedure.