EY Hit with £250,000 Fine by UK Regulator for Breaching Non-Audit Services Fee Cap

EY has been fined over £250,000 ($318,000) by the UK’s Financial Reporting Council (FRC) for exceeding a 70% fee-cap on non-audit services, the regulator announced on August 7.

According to UK regulations, firms are restricted to charging a maximum of 70% of their average audit fees over the previous three years when providing non-audit services to large firms.

The FRC stated that EY UK tested the fee ratio at the network level but failed to do so at the firm level. Consequently, EY accepted and carried out non-audit work in breach of the 70% fee cap. Network level refers to members of the global EY network, while firm level pertains specifically to EY UK.

The breach, which falls under the FRC’s Revised Ethical Standard 2019, was deemed neither intentional nor dishonest, the FRC clarified. The Revised Ethical Standard 2019 reflects UK law requirements and restricts the amount of non-audit services an audit firm can provide to a public interest entity.

EY’s breach occurred while working for Moscow-headquartered mining group Evraz. Evraz, which previously traded on the FTSE 100, has had its shares suspended from trading on the London Stock Exchange since March 2022. The FRC noted that the breach relates to the statutory audit of Evraz plc's financial statements for the year ended December 31, 2021.

As a result, EY faces a total financial sanction of £251,305, in addition to non-financial sanctions. These non-financial sanctions include a published reprimand and a requirement for EY to prepare and present a root-cause analysis report to the FRC, identifying the reasons for the breach and actions taken since. EY UK will also need to implement any further remedial actions proposed by the FRC as deemed necessary.

Moreover, the "big four" firm has also covered the costs of the FRC’s executive counsel’s investigation. FRC deputy executive counsel Claudia Mortimore stated, “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."

Mortimore added, “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.”

An EY spokesperson reportedly 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.”

By fLEXI tEAM