EY Gets Caught Up in Independence Violations Because Audit Partner Rotation Is For Chumps

We think this was first spotted by Financial Times so h/t to them.

Gigantic UK-based energy company Shell announced yesterday it will be updating its 2023 and 2024 Form 20-Fs “due to EY non-compliance with audit partner rotation rules” after EY UK told them they’d discovered a small audit partner rotation issue for those years.

Said the news release put out by Shell:

On July 1, 2025, EY, Shell plc’s independent registered public accounting firm, advised the Audit and Risk Committee of the Board that its US opinions on Shell plc’s previously issued audited consolidated financial statements and effectiveness of internal control over financial reporting (jointly the “previously issued financial statements”) for the years ended and as of December 31, 2023 and 2024 (the “applicable years”), respectively, should no longer be relied upon. After a review, EY concluded that it was not in compliance with the SEC’s auditor independence rules for the audits of the applicable years.

EY has determined that the partner who led the audit for the applicable years had exceeded the period allowed under SEC audit partner rotation rules and hence was not eligible to serve as lead engagement partner for those audits.

EY subsequently assigned a different partner to perform the role of lead audit partner with respect to the audits and concluded that no changes to the previously issued financial statements for the applicable years are necessary. EY has also concluded that the appropriate remediation has been completed, and it is capable of exercising objective and impartial judgment with respect to the US audit opinions included in the amended Form 20-Fs for the applicable years to be filed with the SEC.

OK so EY found out the engagement partner had been sticking around on this client for too long — too long being more than five years per SEC rules — and informed the client’s audit and risk committee at which point Shell put out this press release. If there’s anything audit committees and investors love it’s hearing the words “previously auditing financial statements and effectiveness of internal control over financial reports should no longer be relied upon.” Really inspires confidence in those financial statements Shell worked so hard to keep neat and tidy.

The UK has similar audit partners rotation rules and, as expected, their regulator will be looking into this. In another failure to rotate case, EY was fined £500,000 by the Financial Reporting Council in April for exceeding the maximum ten year engagement period for audits of a Public Interest Entity (PIE) without renewal via a qualifying public tender on another client, Stirling Water Seafield Finance. EY audited SWSF from the financial year ended December 31, 2009 until its resignation as auditor in April of 2021. Said FRC Deputy Executive Counsel Jamie Symington about that one: “Mandatory firm rotation is a clear requirement for auditors underpinned by company law and the FRC’s Revised Ethical Standard. It is an integral legal safeguard to provide assurance that auditors are demonstrably independent which supports trust and confidence in UK corporate reporting and audit. In this case, there were significant failings in relation to mandatory firm rotation requirements at both the engagement and firm level during the continuance stage, which led to EY carrying out audit work despite being ineligible.”

“EY UK deeply regrets this occurred and has remediated the matter. There has been no change to the financial information previously prepared by Shell plc, for the applicable years, and EY UK is providing updated, unqualified, SEC audit opinions,” said the firm in a statement to FT. “We are committed to the highest standards of audit quality and will continue to take any necessary steps to ensure these standards are upheld.”

FT said EY’s fee for 2024 alone was $66 million. First contracted with EY for all their audit needs in 2016, Shell had been planning to retain EY for another ten years, subject to shareholder approval at the company’s 2026 annual meeting, but we suspect there may be a different outcome after this.

Get in there KPMG, now’s your chance.