Exclusive: SEC probes Ernst & Young over audit client lobbying

Mon Jan 7, 2013 5:39pm EST
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By Sarah N. Lynch and Dena Aubin

WASHINGTON/NEW YORK (Reuters) - The Securities and Exchange Commission is investigating whether auditing company Ernst & Young violated auditor rules by letting its lobbying unit perform work for several major audit clients, people familiar with the matter told Reuters.

The SEC inquiry began shortly after Reuters reported in March 2012 that Washington Council Ernst & Young, the E&Y unit, was registered as a lobbyist for several corporate audit clients including Amgen Inc, CVS Caremark Corp and Verizon Communications Inc [ID:nL2E8DL649], according to one of the sources.

The SEC's enforcement division and its Office of the Chief Accountant are looking in to the issue, according to the two sources, who spoke in recent days and who could not be named because the investigation is not public.

It is unclear how far along the probe is, or whether it could result in the SEC filing civil charges against Ernst & Young, one of the world's largest audit and accounting firms.

An SEC spokesman declined to comment.

Ernst & Young spokeswoman Amy Call Well declined to comment on whether the company was being investigated. "All of our services for audit clients undergo considerable scrutiny to confirm they are consistent with applicable rules," she said.

U.S. independence rules bar auditors from serving in an "advocacy role" for audit clients. The goal is to allow auditors to maintain some degree of objectivity regarding the companies they audit, based on the idea that auditors are watchdogs for investors and should not be promoting management's interests.

The SEC's rule does not definitively say whether lobbying could compromise an auditor's independence. It is more focused on barring legal advocacy, such as expert witness testimony.   Continued...

The entrances to the offices of Ernst & Young is seen in New York April 28, 2009. REUTERS/Shannon Stapleton