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EY has been fined £250,000 for inadequate practices over the audit of Russian steel group Evraz.
The Financial Reporting Council imposed the fine after the accountancy firm breached Revised Ethical Standard 2019 by exceeding the 70% fee-cap on non-audit services for the Russian group’s 2021 audit.
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.
EY also received non-financial sanctions in the form of a reprimand as well as a root-cause analysis report to be presented to the FRC identifying the reasons for the breach and actions taken since, including in response to the wider issue around EY’s handling of the approval and assessment of non-audit services, identified in the FRC’s 2023 Audit Quality Inspection and Supervision Report.
Evraz is 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 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.
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.”
In a statement, EY said: “We identified a breach of the non-audit services fee cap in relation to our 2021 audit of Evraz plc, which we self-reported to the FRC, and have fully co-operated throughout the investigation. We are committed to learning from this matter and have since enhanced our internal guidance, training and procedures.”
