backOn August 7, 2024, the Financial Reporting Council (“FRC”) announced that it has imposed sanctions against Ernst & Young LLP (“EY UK”) following the FRC’s investigation into the Firm’s statutory audit of Evraz plc (the “Company”) for fiscal year 2021. Because the Company’s shares traded on the Main Market of the London Stock Exchange, it was designated as a public interest entity under the Statutory Auditors and Third Country Auditors Regulations 2016; UK law, however, imposed a cap on the amount of non-audit services that an audit firm can provide to a public interest entity in the amount of 70% of the average of the fees paid to the audit firm over the prior three years. The FRC found that EY UK performed non-audit work in breach of the fee cap, noting that although EY UK tested its compliance with the fee cap at the network level (i.e., among members of the global EY network), it failed to do so at the firm level.
The FRC sanctioned EY UK in the amount of £121,305 to disgorge profits earned on fees above the fee cap and an additional £200,000 (reduced to £130,000 to reflect admissions and early resolution). The FRC also published a statement of reprimand as to the Firm and required the Firm to prepare a root cause report identifying the reasons for the breach and actions taken following the breach.