Ernst & Young’s Indonesian member to pay $1 Million to settle audit failure 

PCAOB Announces $1 Million Settlement with Indonesian Member of 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 (PCAOB) announced that it censured and imposed a $1 million civil penaltyPDF 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 case involved the 2011 audit of an Indonesian telecommunications company. A U.S.-based EY partner performing a review required by PCAOB standards informed the engagement partner that he believed the company failed to provide sufficient evidence to support the accounting for more than 4,000 leases for spaces on cellular towers. In response, the engagement partner contacted the regional professional practice director who, despite the review partner’s concerns, authorized the engagement partner to release the audit report.

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.

The sanctioned individuals are listed below.

• Roy Iman Wirahardja, 2011 engagement partner, was censured, fined $20,000, and barred for five years from association with a PCAOB-registered public accounting firm. Mr. Wirahardja is no longer associated with EY Indonesia.
• James Randall Leali, former professional practice director for the EY network’s Asia-Pacific region, was censured, fined $10,000, and restricted for one year from serving as an engagement partner, an engagement review partner, or professional practice director.
  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.

Source: PCAOB

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