Who Audits EY (Ernst & Young) – Revealed

EY, as you already know, is one of the Big 4 firms that helps publicly traded companies with their financial records. But who audits EY and keeps it in check? You may wonder!

The interesting bit is that no one audits the financial records of EY. I believe this is because it is a partnership-based firm, not a publicly traded entity.

But, EY does release a transparency report every year, which is (somewhat) like the financial report of public firms. The company also gets reviews from different institutes, and other regulatory bodies are there to keep its practices in check. 

In this guide, I’ll reveal:

• Who audits EY?
• Who are the 4 major regulatory bodies that supervise EY?
• What are the EY internal quality control standards?

Who Audits EY?

EY (like other Big 4 firms) is a partnership company (with no shareholders). This means it is not legally bound to be audited by any external auditor. 

So, it means that no one audits the financial records of EY like it does for others! (Source)

But that’s not just it! I learned that EY publishes an Annual Transparency Report. This report is similar to the annual financial report for publicly traded companies. It covers EY’s:

• Structure
• Strategic priorities
• Performance
• Governance
• And more…

(Source)

Here’s the exciting part! EY has its own set of internal quality standards (think of them as rules) in its audit services.

Not only that, but it also follows the guidelines provided by ISQC!

On top of that, EY gets its peer reviews from various institutes. It helps the firm to double-check its work quality.

Mark Rigotti, CPA Public Practice in the USA, has said on Quora. “NOONE “audits” them. Rather their audits (other accounting work as well) are reviewed by other CPA firms for adherence to professional standards in a process called “Peer Review”. For audits of public companies you also have the SEC oversight.” (Source)

Wait, there’s more! Many countries and regions have regulatory bodies that inspect the quality of EY audit services. I’ve listed below 4 of them below:

1. Public Company Accounting Oversight Board 

In the U.S., there is a Public Company Accounting Oversight Board (a non-profit regulatory body) which: 

• Ensures audit firms like EY provide the highest quality audit services.
• Inspects the audit process of EY and other audit firms
• Enforces audit regulations per the Sarbanes-Oxley Act.

 (Source)

PCAOB inspects EY annually (or every 3 years) to make sure it maintains the highest standards of: 

• Integrity
• Accuracy
• Transparency

(Source)

2. Financial Reporting Council 

The Financial Reporting Council is an independent regulatory body (an “executive non-departmental public entity”) in the UK. It gets support from the UK’s Department of Business and Trade.

FRC has the responsibility of inspecting auditors, such as EY. It supervises the firm to make sure it provides high-quality audit services to its clientele. (Source)

Here’s more! FRC also sets corporate governance and stewardship codes for EY and other audit firms! (Source)

These codes are more like the transparency guidelines for audit firms, including EY! 

3. European Financial Reporting Advisory Group 

Let’s hop over to the European Union!

In this region, the European Financial Reporting Advisory Group keeps a check on the audit quality of EY!

EFRAG recommends to the IASB new audit and accounting rules for EY. Additionally, it acts as:

• An advisor to the EC related to the adaptation of the IFRS for EY and other audit firms.
• A supervisor for checking the audit quality of EY offices operating within the European Union.

(Source)

4. International Federation of Accountants 

The International Federation of Accountants has an important place in the accounting and auditing industry. This is because IFAC set international standards for EY related to: 

• Auditing public companies
• Accounting practices
• Ethics for audit and accounting services

(Source)

Think of IFAC as a guiding star for EY! 

It provides valuable recommendations to EY so it can operate with compliance.

The table below will give you some more information about IFAC: 

EY Internal Quality Control Standards

Although EY is not audited by any independent external auditor, it does understand the importance of its role in its services. 

In this regard, EY has set up internal quality control standards to build and maintain trust with its clients. 

1. Invest in Technology

While reviewing the annual report of EY, I came to know that the firm heavily invests in technology tools to improve its audit services, such as

• Data analyzer
• Blockchain
• Artificial intelligence 

 (Source)

This helps its workforce to focus on the key risks in an audit!

2. Hire Skilled Audit Professionals

EY doesn’t just rely on technology! It also hires top gurus who help provide exceptional audit services to its clientele. 

The firm strongly believes that it is important to have an audit team with:

• Diverse background
• Strong technology skills

This enables EY to transform the way it works and offer innovation in its services.. 

3. Sustainable Audit Quality Program

Another important aspect of EY’s internal quality control standards is its Sustainable Audit Quality (SAQ) program. It helps the firm to deliver consistent audit services. 

I discovered that this program is not a one-time effort. It’s a continuous journey of improvement!

EY has structured the SAQ program around 6 pillars, including:

• Setting a clear tone
• Hiring capable professionals
• Simplifying and innovating the audit process 
• Using audit technology and digital tools
• Enabling the audit team to provide high-quality services 
• Accountability 

This way, EY improves trust in the capital market.

4. Continuously Review and Change Policies

EY understands the importance of adaptation to the changing audit industry trends!

Therefore, the firm continuously reviews its quality control procedure.

It doesn’t just stop there! EY then makes any required changes to its policies in accordance with the latest compliance practices. 

So far, I found that EY’s audit approach is about staying agile. This is why the company continues to deliver the best possible audit services to its clients.