Ernst and Young

Early history

EY is the result of a series of mergers of ancestor organizations. The oldest originating partnership was founded in 1849 in England as Harding & Pullein. In that year the firm was joined by Frederick Whinney. He was made a partner in 1859 and with his sons in the business it was renamed Whinney Smith & Whinney in 1894.

In 1903, the firm of Ernst & Ernst was established in Cleveland by Alwin C. Ernst and his brother Theodore and in 1906, Arthur Young & Co. was set up by the Scotsman Arthur Young in Chicago.

As early as 1924, these American firms allied with prominent British firms, Young with Broads Paterson & Co. and Ernst with Whinney Smith & Whinney. In the year 1979, this led to the formation of Anglo-American Ernst & Whinney, creating the fourth largest accountancy firm in the world. Also in 1979, the European offices of Arthur Young merged with several large local European firms, which became member firms of Arthur Young International.

Mergers

In 1989, the number four firm Ernst & Whinney merged with the then number five, Arthur Young, on a global basis to create Ernst & Young.

In October 1997, EY announced plans to merge its global practices with KPMG to create the largest professional services organization in the world, coming on the heels of another merger plan announced in September 1997 by Price Waterhouse and Coopers & Lybrand. The merger plans were abandoned in February 1998 due to client opposition, antitrust issues, cost problems and difficulty of merging the two diverse companies and cultures.

EY had built up its consultancy arm heavily during the 1980s and 1990s. The U.S. Securities and Exchange Commission and members of the investment community began to raise concerns about potential conflicts of interest between the consulting and auditing work amongst the Big Five and in May 2000, EY was the first of the firms to formally and fully separate its consulting practices via a sale to the French IT services company Capgemini for $11 billion, largely in stock, creating the new company of Capgemini Ernst & Young, which was later renamed Capgemini.

21st century: Expansion and Future

In 2002, EY took over many of the ex-Arthur Andersen practices around the world, although not those in the UK, China, or the Netherlands.

In 2006, EY became the only member of the Big Four to have two member firms in the United States, with the inclusion of Mitchell & Titus, LLP, the largest minority-owned accounting firm in the United States.

In 2010, EY acquired Terco, the Brazilian member firm of Grant Thornton.

In 2013, EY agreed to pay federal prosecutors $123 million to settle criminal tax avoidance charges stemming from $2 billion in unpaid taxes from about 200 wealthy individuals advised by four Ernst & Young senior partners between 1999 and 2004.

In 2013, EY changed its brand name from Ernst & Young to EY and tagline to "Building a better working world".

In 2013, the Pope of the Roman Catholic church hired EY to help review Vatican City State's finances and help “verify and consult” the institution’s administration, including the museums, post office and tax-free department store. EY expanded further and acquired all of KPMG Denmark's operations including its 150 partners, 1500 employees and 21 offices.

In 2015, EY opened its first ever global Security Operations Centre at Thiruvananthapuram, Kerala in India and will invest $20 million over 5 years to combat increasing threat of cybercrimes.

In 2017 EY announced it was opening an executive support center in Tucson, Arizona, creating over 125 new jobs. In 2017 the company began looking for a location for a new, $4.35 million professional services center in Louisville, Kentucky, creating 125 new jobs, due to open in mid-2018.

Global structure

EY is the most globally managed of the Big Four firms. EY Global sets global standards and oversees global policy and consistency of service, with client work performed by its member firms.

Each EY member country is organized as part of one of four areas. This is different from other professional services networks, which are more centrally managed.

The four areas are:

Each area has an identical business structure and a management team, which is led by an Area Managing Partner who is part of the Global Executive board. The aim of this structure is to effectively cater for an increasingly global clientele, who have multinational interests.

Services

EY has the following four main service lines:

Staff

Logo

The rebranded EY logo was unveiled in July 2013 to coincide with the firm changing its trading name from Ernst & Young to EY. The logo was subsequently updated in 2015.

Accounting scandals

Ernst and Young has been in accounting scandals - Bank of Credit and Commerce International (1991), Informix Corporation (1996), Sybase (1997), Cendant (1998), One.Tel (2001), AOL (2002), HealthSouth Corporation (2003), Chiquita Brands International (2004), Lehman Brothers (2010), Sino-Forest Corporation (2011) and Olympus Corporation (2011).

SEC barred the firm from accepting new clients for six months

In 2004, Ernst and Young was punished for forming highly profitable business with one of its audit clients. As a result, the firm was barred by SEC from accepting any new publicly traded companies as audit clients for six months.

Equitable Life (2004)

In April 2004, Equitable Life, a UK life assurance company, sued EY after nearly collapsing but abandoned the case in September 2005. EY described the case as "a scandalous waste of time, money and resources for all concerned."

Bally Total Fitness (2008)

Following allegations by the Securities and Exchange Commission that EY had committed accounting fraud in its work auditing the books of Bally Total Fitness, EY reached two settlements in 2008, including a fine of $8.5million.

Anglo Irish Bank (2009)

In 2009, in the Anglo Irish Bank hidden loans controversy, EY was criticised by politicians and the shareholders of Anglo Irish Bank for failing to detect large loans to Sean FitzPatrick, its Chairman, during its audits. The Irish Government had to subsequently take full ownership of the Bank at a cost of €28 billion. The Irish Chartered Accountants Regulatory Board appointed John Purcell to investigate. EY said it "fundamentally disagrees with the decision to initiate a formal disciplinary process" and that "there has been no adverse finding made against EY in respect of the audit of Anglo Irish Bank."

Sons of Gwalia (2009)

In 2009, EY, the former auditors of Sons of Gwalia, agreed to a $125m settlement over their role in the gold miner’s collapse in 2004. Ferrier Hodgson, the company's administrator, had claimed EY was negligent over the accounting of gold and dollar hedging contracts. However, EY said that the proposed settlement was not an admission of any liability.

Akai Holdings (2009) and Moulin Global Eyecare (2010)

In 2009, EY agreed to pay US$200m out of court to settle a negligence claim by the liquidators of Akai Holdings. Separately the firm was alleged of falsifying and doctoring documents it presented to defend against the negligence claim by Akai's liquidators. In a separate lawsuit, a former EY senior partner from 1984 to 1991, Cristopher Ho, and his listed company, Grande Holdings, paid over US$100m to Akai creditors to settle Akai's liquidators' claim that Ho conspired with Ting of stripping assets from Akai. Police raided the Hong Kong office and arrested an EY partner who had been an audit manager on the Akai account from December 1997, although audit documents had been doctored dating back to 1994. Akai was said to be the firm's largest client for most of the 1990s from Hong Kong. The EY partner for the Akai account between 1991 and 1999, David Sun Tak-kei, faced no charges and went on to become co-managing partner for EY China. A few months later EY settled a similar claim of up to HK$300m from the liquidators of Moulin Global Eyecare, an audit client of the Hong Kong affiliate between 2002 and 2004. The liquidators described the Moulin accounts as a "morass of dodginess".

Lehman Brothers (2010)

The Valukas Report issued in 2010 charged that Lehman Brothers engaged in a practice known as repo 105 and that EY, Lehman's auditor, was aware of it. EY was alleged of professional malpractice regarding the lack of disclosure of Lehman's repo 105 practice in Lehman's public filings. New York prosecutors announced in 2010 that they have sued the firm. David Goldfarb, a Lehman CFO who concocted the repo 105 balance sheet window dressing technique was a former senior partner of EY. EY said that its last audit of Lehman Brothers was for the fiscal year ending 30 November 2007 and that Lehman’s financial statements were fairly presented in accordance with Generally Accepted Accounting Principles. In March 2015, EY settled Lehman-related lawsuits with municipalities in New Jersey and California.

Standard Water (2013)

EY Hong Kong resigned from the audit of Standard Water on when it emerged that although EY Hong Kong had signed off the audit, it had been effectively outsourced to the affiliate in mainland China, which had received 99.98% of the fee. This was important because shareholders have less confidence in mainland auditors and because audit papers on the mainland are subject to state secrecy laws and can be withheld from outside regulators. EY's quality and risk management leader (Greater China) even testified in the Court of First Instance that he was not sure whether there was a formal agreement covering the relationship between the two EY entities. The court case in 2013 came as US regulators were taking an interest in similar cases of accounting fraud in mainland China.

Hellas Telecommunications (2015)

In 2015, Britain's accounting regulator, the Institute of Chartered Accountants in England and Wales (ICAEW), reprimanded Ernst & Young (EY) for its involvement in the Wind Hellas scandal involving mainly TPG, Apax Partners & Nikesh Arora. EY agreed to become administrator of Hellas Telecommunications even though EY had been its accountant for the previous three years. The company was fined £250, 000 ($390, 850) for ethical breaches.

Tax avoidance

In 2014 tax arrangements negotiated by EY for The Walt Disney Company, Koch Industries, Skype, and other multinational corporations became public in the so-called Luxembourg Leaks. The disclosure of these and other tax arrangements led to controversial discussions about tax avoidance.

Weatherford Audit

In October 2016, EY settled with the SEC because they were unable to detect financial statement fraud that was committed by the Weatherford tax department. Weatherford misstated their financial statements by manipulating the income tax line item in their financials. EY was Weatherford's independent auditors when the fraud was perpetrated.

Ernst & Young ShinNihon reprimanded and fined by regulator (2015)

EY's member firm in Japan, Ernst & Young ShinNihon, was fined ¥2.1 billion (US$17.4 million) for failing to spot irregularities during audit of its client Toshiba, which was Japan's worst accounting scandal in years. The firm was also suspended from taking up new business for three months. An official from Japan's Financial Services Agency (FSA) described that "[t]here was a grave breach of duty". The firm's CEO and chairman, Koichi Hanabusa stepped down the following month to take responsibility and monthly salaries for 19 employees were cut from 20 per cent to 50 per cent. In an unusual move, the FSA publicly named seven accountants involved in the audit who were said of failing to exercise due caution and signing off on false financial documents. The FSA also said the "firm’s operations were deeply improper". ShinNihon, at the time, was Japan's biggest accounting firm, with about 3,500 certified accountants and more than 4,000 clients.

Ernst & Young Hong Kong and WoSign

In October 2016, Mozilla stopped accepting WebTrust audits from Ernst & Young Hong Kong due to their failure "to detect multiple issues they should have detected" during their audits of WoSign.

Corporate affairs and culture

EY's publicity activity includes its World Entrepreneur Of The Year program, held in over 60 countries.

EY UK also publicizes itself by sponsoring exhibitions of works by famous artists, such as Cézanne, Picasso, Bonnard, Monet, Rodin and Renoir. The most recent of these was Maharaja: the Splendour of India's Royal Courts at the Victoria and Albert Museum.

In addition, EY publicizes itself by sponsoring the educational children's show Cyberchase on PBS Kids under the PBS Kids GO! television brand, in an effort to improve mathematics literacy in children.

EY in the UK sponsors the ITEM club.

EY in the UK has set up the National Equality Standard, an initiative developed for business which sets clear equality, diversity and inclusion (EDI) criteria against which companies are assessed. The National Equality Standard (NES) is currently the only industry recognised national standard for EDI in the UK.

EY in the UK has set up EY Foundation, a new UK charity set up to support young people and entrepreneurs.

Sports sponsorship

On 8 September 2011, Rio 2016 made the announcement that EY will be an official sponsor of the XXXI Olympic Summer Games to be held in Brazil, as the exclusive provider of professional services – consulting and auditing – for Rio 2016 organizing committee.

EY has also been an Official Partner to The 2012 and the 2014 Ryder Cups.

EY also has a longstanding relationship with the 2011 Tour de France winner Cadel Evans.