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Ernst & Young Network for Audit Failure, Noncooperation, and Violations
of Quality Control Standards
Also, two audit partners were sanctioned for their roles in the audit
failure
The Public Company Accounting Oversight Board today announced that it censured
and imposed a $1 million civil penalty on KAP Purwantono, Suherman & Surja, the
Indonesian member firm of the Ernst & Young global network, for audit failure,
noncooperation, and violations of the Board's quality control standards.
In addition, the former professional practice director for the EY network's Asia-Pacific
region and a former EY Indonesia engagement partner were sanctioned for their
roles in the audit failure. The former engagement partner also was sanctioned for
noncooperation with a Board inspection and investigation.
"Reliable audits are critical to providing investors a basis for confidence to participate
in U.S. public capital markets," said James R. Doty, PCAOB chairman. "PCAOB
standards and oversight are key protections for investors in U.S. securities.
Wherever located, all audit firms that elect to register with the PCAOB must ensure
that they and their personnel comply and cooperate with PCAOB inspections and
investigations."
The professional practice director authorized the release subject to the company
completing its lease accounting analysis in the future and the engagement partner
informing management that a restatement could be required. EY Indonesia then
released its unqualified audit opinion without obtaining the completed analysis.
Shortly before a 2012 PCAOB inspection of the audit, members of the EY Indonesia
engagement team improperly created dozens of new audit work papers. During that
inspection, the engagement partner participated in improperly creating another work
paper, which was provided to PCAOB inspectors. EY Indonesia and the engagement
partner subsequently failed to cooperate with the Board's investigation.
"In their haste to issue audit reports for their client, the firm and two partners shirked
their fundamental duty to obtain sufficient audit evidence," said Claudius B. Modesti,
director of the PCAOB Division of Enforcement and Investigations. "Matters were
made much worse when EY Indonesia and the engagement partner did not
cooperate with the Board's inspection and investigation."
The Board granted extraordinary cooperation credit to a member of the 2011 audit
engagement team who provided substantial assistance to the Board in investigating
the misconduct.
None of the respondents admitted or denied the allegations contained in the order.
The investigation that uncovered the misconduct and resulted in the settlements
announced today originated with information obtained through the PCAOB
inspection program. PCAOB enforcement staff members Raphael Larson, John
Abell, Tima Hawes, and Robert Cox conducted the investigation.