October 18, 2016

Ernst & Young will pay more than $11.8 million to settle charges related to failed audits of oil services client Weatherford International.  Weatherford previously paid $140 million to settle charges that it used deceptive income tax accounting to inflate earnings.  The SEC’s order found that despite placing Weatherford audits in a high-risk category, Ernst & Young’s audit team repeatedly failed to detect the company’s fraud until it had been going on for more than four years.  The audit team was aware of post-closing adjustments that Weatherford made to significantly lower its year-end provision for income taxes each year, but it relied on Weatherford’s unsubstantiated explanations for the adjustments rather than performing the required audit procedures to scrutinize the company’s accounting.  The Ernst & Young partner who coordinated the audits, Craig Fronckiewicz, and a tax partner who was part of the audit team, Sarah Adams, agreed to suspensions to settle charges that they disregarded significant red flags during the audits.  SEC

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