Ernst & Young will pay more than $11.8 million to settle charges that one partner and a former partner ignored red flags in audits of an oil services company. The Securities and Exchange Commission says Craig Fronckiewicz, the partner who coordinated the audits, and former tax partner, Sarah Adams, who was part of the audit engagement team, missed the use of deceptive income tax accounting to inflate Weatherford International's earnings.
Weatherford has already agreed to a $140 million penalty and the E&Y money will be combined with that amount to return more than $152 million to investors. Both Fronckiewicz and Adams agreed to be suspended from practicing before the SEC or participating in audits of public companies. They did not admit or deny the findings.
The SEC said it took the audit team more than four years to detect the fraud even though the firms categorized Weatherford audits as high risk and the team was aware of post-closing adjustments by Weatherford that significantly lowered its year-end income tax provisions. The audit team, the SEC said, relied on company explanations instead of performing required audit processes.
The order also says E&Y did not take effective measures to minimize known recurring problems its audit teams experienced when auditing tax accounting.
The assessment against the accounting firm is comprised by disgorgement of $9 million, prejudgment interest of more than $1.8 million, and a penalty of $1 million. Fronckiewicz can apply for reinstatement after two years; Adams after one year.
Bob Scott has provided information to the tax and accounting community since 1991, first as technology editor of Accounting Today, and from 1997 through 2009 as editor of its sister publication, Accounting Technology. He is known throughout the industry for his depth of knowledge and for his high journalistic standards. Scott has made frequent appearances as a speaker, moderator and panelist and events serving tax and accounting professionals. He has a strong background in computer journalism as an editor with two former trade publications, Computer+Software News and MIS Week and spent several years with weekly and daily newspapers in Morris County New Jersey prior to that. A graduate of Indiana University with a degree in journalism, Bob is a native of Madison, Ind
