The FRC has imposed a financial sanction comprising of a £121,305 in respect of disgorgement of profits earned in fees in excess of the fee-cap, and charged the firm an additional £200,000 component. This has been discounted for admissions to failures and early settlement to £130,000. As a result of this, the total fee EY will pay is £251,305.

EY has also been ordered by the financial watchdog to publish a statement in the form of a reprimand and provide a root-cause analysis report identifying the reasons for the breach and actions taken since, including in response to the wider issue around EY’s handling of the approval and assessment of non-audit services, identified in the FRC’s 2023 Audit Quality Inspection and Supervision Report.

EY UK has also paid the costs of FRC Executive Counsel’s investigation.

Evraz is a multi-national mining group, headquartered in Moscow but incorporated in London and listed as a FTSE 100 company. Its shares have been suspended from trading on the London Stock Exchange since March 2022.

EY UK audited Evraz since it was listed in the UK in 2011 until its resignation as auditor in November 2022 following the imposing of new UK Government sanctions against the Russian Federation in response to the invasion of Ukraine. There is no suggestion that EY has in any way failed to comply with its obligations under applicable sanctions laws.

The Revised Ethical Standard 2019, which reflects the requirements of UK law, imposes restrictions on the amount of non-audit services that an audit firm may provide to a Public Interest Entity.

The cap on non-audit work is 70% of the average of the fees paid to the audit firm over the previous three consecutive years. The cap applies at both Network level (i.e. members of the global EY network) and at firm level. EY UK tested the fee ratio at Network level but not at Firm level, and so accepted and carried out non-audit work in breach of the 70% fee cap. This breach was not intentional or dishonest.

Claudia Mortimore, deputy executive counsel, said: “The Ethical Standard sets clear limits on the value of non-audit services an auditor can provide. Its aim is to uphold high standards of auditor independence and ensure public confidence in audit.

“In this instance, EY’s systems and controls failed to ensure compliance with the Ethical Standard which led to the fee-cap being breached.

“In addition to the financial sanctions announced, EY is required to report to the FRC on the reasons for the breach and to provide assurance that appropriate measures are in place to avoid any future recurrence.”