Two audit partners have also been sanctioned by the US regulator as part of the action against KAP Purwantono, Suherman & Surja, the Indonesian member firm of the EY global network.

In addition, the former professional practice director for the EY network's Asia-Pacific region and a former EY Indonesia engagement partner were sanctioned for their roles in the audit failure. The former engagement partner also was sanctioned for non co-operation with a board inspection and investigation.

James Doty, PCAOB chairman, said: ‘Reliable audits are critical to providing investors a basis for confidence to participate in US public capital markets. Wherever located, all audit firms that elect to register with the PCAOB must ensure that they and their personnel comply and cooperate with PCAOB inspections and investigations.’

The case involved the 2011 audit of an Indonesian telecommunications company. A US-based EY partner performing a review required by PCAOB standards informed the engagement partner that he believed the company failed to provide sufficient evidence to support the accounting for more than 4,000 leases for spaces on cellular towers. In response, the engagement partner contacted the regional professional practice director who, despite the review partner's concerns, authorised the engagement partner to release the audit report.

The professional practice director authorised the release subject to the company completing its lease accounting analysis in the future and the engagement partner informing management that a restatement could be required. EY Indonesia then released its unqualified audit opinion without obtaining the completed analysis.

Shortly before a 2012 PCAOB inspection of the audit, members of the EY Indonesia engagement team improperly created dozens of new audit work papers. During that inspection, the engagement partner participated in improperly creating another work paper, which was provided to PCAOB inspectors. EY Indonesia and the engagement partner subsequently failed to cooperate with the board's investigation.

Claudius Modesti, director of the PCAOB division of enforcement and investigations, said: ‘In their haste to issue audit reports for their client, the firm and two partners shirked their fundamental duty to obtain sufficient audit evidence. Matters were made much worse when EY Indonesia and the engagement partner did not cooperate with the board's inspection and investigation.’

Following the investigation, Roy Wirahardja, the 2011 engagement partner, was censured, fined $20,000, and barred for five years from association with a PCAOB-registered public accounting firm. He is no longer associated with EY Indonesia.

James Leali, former professional practice director for the EY network's Asia-Pacific region, was censured, fined $10,000, and restricted for one year from serving as an engagement partner, an engagement review partner, or professional practice director. None of the respondents admitted or denied the allegations contained in the order.

The board granted extraordinary cooperation credit to a member of the 2011 audit engagement team who provided substantial assistance in investigating the misconduct.

The latest regulatory action follows PCAOB’s move at the end of 2016 to issue a record $8m civil penalty against Deloitte’s Brazilian firm for ‘some of the most serious misconduct it has ever uncovered’, including the issuing of materially false audit reports and attempting to cover up audit violations by improperly altering documents and providing false testimony.

The PCAOB enforcement order for EY Indonesia is here.

Report by Pat Sweet