Exclusive: Ernst, audit clients cut lobbying ties-records

WASHINGTON/NEW YORK Fri May 4, 2012 1:11am EDT

The entrances to the offices of Ernst & Young is seen in New York April 28, 2009. REUTERS/Shannon Stapleton

The entrances to the offices of Ernst & Young is seen in New York April 28, 2009.

Credit: Reuters/Shannon Stapleton

WASHINGTON/NEW YORK (Reuters) - Ernst & Young's lobbying unit is no longer listed as a lobbyist for three major U.S. companies, all of whom were 2011 audit clients of the accounting giant. The deregistration follows questions raised by two U.S. senators in March about whether the dual relationships crossed auditor independence boundaries.

Documents filed last month with Congress showed that Washington Council Ernst & Young, the E&Y unit, was no longer registered as doing lobbying work for Amgen Inc (AMGN.O), CVS Caremark Corp (CVS.N) and Verizon Communications Inc (VZ.N).

A lobbying-contract termination was also filed on March 31 for a fourth company, Nomura Holdings Inc (8604.T), which, according to securities filings, uses an E&Y affiliate for auditing services. E&Y had provided lobbying services to Nomura since June 2011, according papers on file with Congress.

Auditors that review corporations' books every year must follow rules limiting other ties with audit clients. The rules - meant to prevent auditors from getting too cozy with audit clients - were substantially beefed up a decade ago after a rash of accounting scandals at Enron Corp. and other companies.

An Ernst & Young spokesman declined to comment on the discontinued lobbying relationships. Officials with Nomura, Verizon and CVS declined to comment. Amgen officials could not immediately be reached for comment.

The chief accountant for the U.S. Securities and Exchange Commission, James Kroeker, speaking at a financial reporting conference at Baruch College in New York on Thursday, said SEC rules state an auditor should not act in an advocacy role for a company it audits and lobbying would be inconsistent with that.

Kroeker did not mention any audit firms by name.

He said: "If you think about lobbying in the traditional sense, you would say, 'wouldn't somebody that's lobbying be placing themselves in a position to be an advocate?'"

Asked whether the SEC was looking into E&Y's lobbying activities, an official in the agency's enforcement division declined to comment because its investigations are not public.

"We are aware of it and we are cognizant of what the rules are," said Howard Scheck, chief accountant of the SEC's division of enforcement, on the sidelines of Thursday's conference.

"If there's a violation that we find, we'll certainly do something about that," he said, without referring to E&Y.

Reuters reported in March that Washington Council Ernst & Young had been hired as a lobbyist for a number of E&Y's audit clients, prompting two lawmakers to demand closer scrutiny.

Democratic senators Carl Levin and Jack Reed both expressed concerns at the time and urged the SEC to look into the matter. On Thursday, Reed's office did not immediately respond to inquiries seeking comment. Levin's office declined to comment.

Verizon had a particularly long relationship with E&Y's lobbyists, who helped the telecommunications company with tax issues beginning in September 2001. The two other lobbying relationships were more recent, dating to February in the case of Amgen and September in the case of CVS Caremark. Both contracts were connected to corporate tax debates. The three U.S. terminations were all effective March 31 and Nomura's termination was filed the same day.

The E&Y spokesman referred Reuters to its earlier statement that Washington Council's work complied with independence rules.

The work was approved by clients' audit committees and it was limited to tax-related issues, E&Y spokesman Charles Perkins said when Reuters reported on the issue in March.

Washington Council did not solicit votes on legislation for E&Y audit clients, Perkins said.

The Public Company Accounting Oversight Board, the watchdog for U.S. auditors, is looking to shore up independence rules after finding numerous instances in which auditors did not dig deeply enough to challenge clients' financial numbers.

The SEC's Kroeker said he was encouraged to see the board tackling the subject.

"Independence is really the bedrock, the foundation of the value that's provided by a third-party audit," he said.

(Reporting by Dena Aubin and David Ingram; Additional reporting by Kim Dixon; Editing by Kevin Drawbaugh and Matt Driskill)

We welcome comments that advance the story through relevant opinion, anecdotes, links and data. If you see a comment that you believe is irrelevant or inappropriate, you can flag it to our editors by using the report abuse links. Views expressed in the comments do not represent those of Reuters. For more information on our comment policy, see http://blogs.reuters.com/fulldisclosure/2010/09/27/toward-a-more-thoughtful-conversation-on-stories/
Comments (1)
Michael_W wrote:
I wonder how many other of the Big 4 Accounting firms have similar lobbying divisions. What has been the precedence of such activity? Is it fair to assume that this is not a new phenomenon, but perhaps the line between lobbying and being an advocate is blurry. Also, what are the pros and cons of lobbying regarding tax issues for an auditor? On first glance, it doesn’t seem that there would be a conflict.

May 09, 2012 9:10am EDT  --  Report as abuse
This discussion is now closed. We welcome comments on our articles for a limited period after their publication.

A tourist takes a plunge as she swims at Ngapali Beach, a popular tourist site, in the Thandwe township of the Rakhine state, October 6, 2013. Picture taken October 6, 2013. REUTERS/Soe Zeya Tun (MYANMAR - Tags: SOCIETY) - RTR3FOI0

Where do you want to go?

We look at when to take trips, budget considerations and the popularity of multigenerational family travel.   Video