The US regulator claimed that despite providing the prohibited legislative advisory services on behalf of the clients, EY ‘repeatedly represented that it was “independent” in audit reports issued on the clients’ financial statements’.

Scott Friestad, associate director in the SEC’s division of enforcement, said: ‘Auditor independence is critical to the integrity of the financial reporting process.  When an auditor acts as an advocate for its audit client, that independence is compromised. Ernst & Young engaged in lobbying activities that constituted improper advocacy and clearly violated the rules.’

According to the SEC, EY subsidiary Washington Council EY (WCEY) impaired the firm’s independence in several lobbying actions. These included sending letters signed by a senior executive of an EY audit client to congressional staff, urging passage of certain legislation and asking congressional staff to insert language into a bill that was favorable to the business interests of one of the firm’s audit clients.

WCEY also met congressional staff in order to defeat legislation detrimental to the business interests of an EY audit client and asked third parties to approach a US senator in order to win support for a legislative amendment sought by an EY audit client.

The SEC said that while EY had issued a written independence policy intended to provide guidance on the provision of legislative advisory services to audit clients, the firm did not provide WCEY with formal, in-person training specifically tailored to the policy.

An EY spokesman in the US said: ‘We regret these instances that arose many years ago. In 2012, Ernst & Young voluntarily decided to cease performing lobbying work for SEC registrant audit clients.’

The spokesman also said auditor independence is ‘of paramount importance.’ EY voluntarily re-issued its guidance following SEC’s criticisms to make its restrictions clearer and took other remedial actions, which resulted in the SEC reducing the size of the penalty imposed.