Ernst & Young is implementing a raft of internal reforms as the accountancy firm seeks to answer critics and improve its reputation.
E&Y has come under pressure in the US over recent months for its work at audit clients such as HealthSouth, the hospital operator which is now correcting up to 15 years of fraudulent books, and Sprint, where E&Y did controversial tax work for two now-deposed executives.
The Securities and Exchange Commission, the chief US financial regulator, recently asked a judge in another case to bar E&Y from accepting new public audit clients for six months.
However, the firm - one of the four large global accountancy enterprises following the destruction of Andersen last year - has at been simultaneously taking a series of internal steps to improve its performance.
Beth Brooke, E&Y's global vice-chair of strategy, said: "We're trying to do what we can to change inside the firm." She said, for example, that E&Y had increased by almost 40 per cent to 125 the number of technical staff who adjudicate on complex audit treatments.
Andersen, which was brought down by its work at Enron, was criticised because some of its auditors in the field seemed able to overrule technical adjudications by head office. That raised questions of whether the client's desires were conflicting with audit independence.
Ms Brooke said E&Y's technical staff reported directly to Susan Frieden, a senior firm member who has taken up a new post of vice-chair of quality, sits on the board and reports directly to Jim Turley, chairman.
E&Y is also stopping work in a large number of areas, some of them beyond the provisions of last year's Sarbanes-Oxley Act, which put strict limits on the consultancy work accountancy firms can offer their audit clients.
The firm has already stopped giving some tax shelter advice to senior executives in companies after its work at Sprint raised questions of conflicts of interest. The firm has also clamped down on some non-financial work known as operational audit.
E&Y also made operational assessments at some of HealthSouth's outpatient facilities, a job it would no longer carry out.
All of the accountancy firms are more conscious that audit failure can endanger their survival in the event of private lawsuits. The size of legal settlements is increasing rapidly and auditors are being named in actions more often.
As a result, E&Y is testing its clients for future problems, a process the firm calls "client reacceptance". Ms Brooke said that E&Y had walked away from about 200 private and public clients, representing from $50m-$100m in annual revenue.
The firm is also sending a code of conduct to its 24,000 staff in the US, requiring that everyone read and sign the code. The same procedure will later be applied to its 106,000 global staff.
E&Y has come under pressure in the US over recent months for its work at audit clients such as HealthSouth, the hospital operator which is now correcting up to 15 years of fraudulent books, and Sprint, where E&Y did controversial tax work for two now-deposed executives.
The Securities and Exchange Commission, the chief US financial regulator, recently asked a judge in another case to bar E&Y from accepting new public audit clients for six months.
However, the firm - one of the four large global accountancy enterprises following the destruction of Andersen last year - has at been simultaneously taking a series of internal steps to improve its performance.
Beth Brooke, E&Y's global vice-chair of strategy, said: "We're trying to do what we can to change inside the firm." She said, for example, that E&Y had increased by almost 40 per cent to 125 the number of technical staff who adjudicate on complex audit treatments.
Andersen, which was brought down by its work at Enron, was criticised because some of its auditors in the field seemed able to overrule technical adjudications by head office. That raised questions of whether the client's desires were conflicting with audit independence.
Ms Brooke said E&Y's technical staff reported directly to Susan Frieden, a senior firm member who has taken up a new post of vice-chair of quality, sits on the board and reports directly to Jim Turley, chairman.
E&Y is also stopping work in a large number of areas, some of them beyond the provisions of last year's Sarbanes-Oxley Act, which put strict limits on the consultancy work accountancy firms can offer their audit clients.
The firm has already stopped giving some tax shelter advice to senior executives in companies after its work at Sprint raised questions of conflicts of interest. The firm has also clamped down on some non-financial work known as operational audit.
E&Y also made operational assessments at some of HealthSouth's outpatient facilities, a job it would no longer carry out.
All of the accountancy firms are more conscious that audit failure can endanger their survival in the event of private lawsuits. The size of legal settlements is increasing rapidly and auditors are being named in actions more often.
As a result, E&Y is testing its clients for future problems, a process the firm calls "client reacceptance". Ms Brooke said that E&Y had walked away from about 200 private and public clients, representing from $50m-$100m in annual revenue.
The firm is also sending a code of conduct to its 24,000 staff in the US, requiring that everyone read and sign the code. The same procedure will later be applied to its 106,000 global staff.
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