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EY breached independence rules for its audits of Shell in the US and in the UK, the energy major has revealed, putting the Big Four firm in regulators’ crosshairs again.
Shell said on Wednesday that the EY partner who led the audit of its 2023 and 2024 financial results had exceeded the period allowed under strict rotation rules set by American regulators, meaning the individual was not eligible to perform that role. EY also told Shell that it had breached UK rotation rules.
The update comes after the Big Four firm was fined in April by the UK accounting watchdog for a similar breach. The Financial Reporting Council issued EY with a £325,000 penalty for auditing listed company Stirling Water Seafield Finance for more than 10 years without publicly retendering for the contract.
The FRC fined rival firm KPMG for breaching the same rules in June.
Shell said EY had informed the energy group’s audit and risk committee on Tuesday that it had fallen foul of rules set by the US Securities and Exchange Commission, and that its US opinions on the company’s financial statements and effectiveness of internal control over financial reporting for 2023 and 2024 could no longer be relied upon.
EY had moved a different partner into the role of lead audit partner for Shell since discovering the issue and concluded that no changes to the previously issued financial statements were necessary, Shell said.
Shell will amend its regulatory filings with the US Securities and Exchange Commission for the two years EY had breached the rules, while the FRC said it was aware and reviewing the issue in the UK. The FRC will then decide whether to open a formal investigation.
Shell’s financial statements remain unchanged.
An EY UK spokesperson said: “EY UK deeply regrets this occurred and has remediated the matter. There has been no change to the financial information previously prepared by Shell plc, for the applicable years, and EY UK is providing updated, unqualified, SEC audit opinions.
“We are committed to the highest standards of audit quality and will continue to take any necessary steps to ensure these standards are upheld.”
Shell did not comment on whether it would retain EY as auditor. EY has been its auditor for nearly 10 years. While Shell has previously said it will reappoint it for another decade, that decision will be voted on at next year’s annual general meeting.
