EY is under investigation by the UK accounting regulator after it continued to audit a Scottish water finance company for longer than permitted under companies law.
The Financial Reporting Council said on Friday that it was probing EY’s audit of Stirling Water Seafield Finance’s accounts for the year ended December 2019, but did not disclose the focus of its inquiry.
Owned by French water and waste group Veolia, the company raises funds for other parts of the group to upgrade and operate wastewater treatment facilities.
Companies House filings show that EY resigned as auditor with immediate effect in April 2021 after belatedly discovering that it had signed off on the company’s accounts for longer than the maximum number of years permitted under UK companies law.
“Due to an inadvertent breach of the maximum engagement period, we were reappointed as external auditor to the company for the year ended 31 December 2019,” it said in a letter to the company’s directors at the time.
“When we became aware of the breach we notified the directors of the company,” it added.
The mistake is an embarrassing one for EY, which charges clients millions of pounds a year for advice on how to meet their own regulatory obligations.
In the letter, published on the Companies House website, EY recommended the company’s directors to seek independent legal advice if they had any questions about their own legal obligations.
Aberdeen-based Stirling Water Seafield Finance appointed mid-tier auditor MHA MacIntyre Hudson to replace EY.
EY had taken over from PwC as auditor in 2009, meaning that depending on the process used to appoint the firm, it would have been limited to a maximum tenure of 10 years under the UK’s Companies Act.
The FRC said the decision to investigate was made in December and that the probe would be carried out under its audit enforcement procedure.
EY is already the subject of FRC investigations into its audits of NMC Health, Thomas Cook and London Capital & Finance, all of which collapsed within months of each other in 2019 and 2020.
EY said it had been notified of the investigation and would co-operate fully with the FRC.