PCAOB’s First Disciplinary Action Against Ernst & Young: Audit Falsification

Lucas Gilmore, “Big 4″ observer
December 15, 2010 /

The Public Company Accounting Oversight Board (PCAOB) has just implemented its first disciplinary action against an Ernst & Young auditor since its assumption of power from the mandate of Sarbanes-Oxley Act, alleging falsification of a 2009 audit report of an anonymous company.

It appeared in an inspection carried out by PCAOB that Jacqueline Higgins, Ernst & Young Boston office manager, together with one engagement partner and senior manager, has repeatedly tampered the documentations of the company’s financial statements by removing, adding and backdating the audit report, violating audit standards and requirements.

PCAOB said in its disciplinary action statement that along the course of the questionable audit which started in 2002, Higgins and the two others have supplied missing areas of the documentation in the audit file with prefabricated information. The disciplinary action also charges the engagement partner and the senior manager of ordering Higgins to replace the company’s pre-final set of financial statements with a falsified tie-out to backdate the statement to the original dates of the audit.

Higgins was, however, removed from the issuer audit engagement in July 2010.

Charles Perkins, Ernst & Young spokesman, said in an official statement that the firm strictly prohibits its auditors from supplying non-justifiable audit works to missing parts of a financial statement, adding that Ernst & Young has already expressed willingness to help PCAOB in the course of the investigation. The firm has also started carrying out an internal disciplinary action against Higgins, Perkins said.

Although the disciplinary action does not impose monetary penalty on Higgins, the engagement partner and the senior manager, Ernst & Young will subject the auditor to an administrative leave with the possibility of being fired afterwards, while the two others have been removed from office.


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