Accounting Theory’s & Standards

Topic:

Submitted To
Steve Oscar D.Rozario
Assistant Professor and Coordinator
Discipline of Accounting
Premier University,Chattogram

Submitted By

Monirul Abedin Sagor

ID: 2003120803750
Program: MBA (1 Year)
Batch: 31st
Section: B
Introduction
Ernst&Young (E&Y) is one of the leading consultancy companies in the world and one of the
Big 4 audit companies together with PriceWaterHouse&Coopers, KPMG and Deloitte Touche
Tohmatsu.

The company's activity is largely globalized which is why it has two major headquarters: United
Kingdom and United States and it operates more than 700 offices in 150 countries around the
globe. As a consequence of the globalization process, the Ernst&Young member locations are
currently divided in 7 areas: (1) Americas. (2) Northern Europe, Middle East, India and Africa,
(3) Central and Eastern Europe, (4) Continental Western Europe (5) Far East, (6) Oceania and
(7) Japan. The number of employees in 2019 reached 300,000 people and the projected revenues
for the same year sum up to $21.1 billion, a double-digit increase compared to 2006.

The auditor's activity reaches a wide range of industries, such as: asset management, automotive,
banking and capital markets, biotechnology, consumer products, insurance, media nd
entertainment, mining and metal, oil and gas, pharmaceutical, real estate, technologies,
telecommunications and utilities. Additional to the general support provided by the company, the
auditor also operates global operations centres in half of the locations. These centres enable
communication between existing stakeholders in the industry to facilitate knowledge sharing and
collaboration.

History
Early History And Mergers

EY resulted from several mergers of ancestor firms over the last century and a half, the oldest of
which was founded in 1849, in England, as Harding & Pullein. That same year, this firm was
joined by an accountant named Frederick Whinney, who, a decade later, became a partner. After
his son joined the firm, it was later renamed Whinney, Smith & Whinney, in 1894.

In 1903, the firm Ernst & Ernst was founded in Cleveland, Ohio, by Alwin C. Ernst, and his
brother, Theodore Ernst. In 1906, Arthur Young & Co. was set up by a Scotsman accountant,
Arthur Young, in Chicago. Starting in 1924, these two American firms became allied with
prominent British firms; Young with Broads Paterson & Co.; and Ernst with the aforementioned
Whinney Smith & Whinney. The latter of these two mergers spawned Anglo-American
partnership Ernst & Whinney in 1979, then the fourth largest accountancy firm in the world.

A decade later, in 1989, Ernst & Whinney merged with the fifth largest firm globally at the time,
Arthur Young & Co., to create Ernst & Young.
Later Developments

In October 1997, Ernst & Young announced plans to merge its global practices with professional
services network KPMG, to create the largest professional services organization in the world.
The announcement came on the heels of an announced merger between Price Waterhouse and
Coopers & Lybrand only a month earlier. These plans were soon abandoned in February 1998,
due to several factors ranging from client opposition, antitrust issues, cost problems, and the
anticipated difficulty of merging the two diverse firms and cultures.The merger between Price
Waterhouse and Coopers & Lybrand, however, went ahead as planned, creating
PricewaterhouseCoopers.

Ernst & Young expanded its consulting practice heavily during the 1980s and 1990s. During this
time, the U.S. Securities and Exchange Commission, and various members of the investment
community, began to raise concerns about a potential conflict of interests. This conflict would be
brought about by firms offering both consulting and auditing services simultaneously to
overlapping clients, a common practice among the "Big Five". In May 2000, Ernst & Young was
the first of those firms to fully separate its consulting practices via a sale to the French IT
services company Capgemini for $11 billion, creating the new company Capgemini Ernst &
Young, which was later renamed back to Capgemini.

21st Century: Recent History, Re-Branding And Expansion

In 2002, Ernst & Young serviced a large chunk of the clients previously working with Arthur
Andersen after their downfall in connection with the Enron scandal, although it did not engage
with any new Arthur Andersen clients from the United Kingdom, China, or the Netherlands.Four
years later, Ernst & Young became the only member of the Big Four to have two member firms
in the United States, with the inclusion of Mitchell & Titus, LLP in 2006, the largest minority-
owned accounting firm in the United States.Mitchell & Titus ended its membership in the EY
network effective October 30, 2015.

In April 2009, Reuters reported that Ernst & Young, spurred by the global economic downturn,
had launched a cost-saving initiative encouraging its staff in China to take 40 days of low-pay
leave between the summer of 2009 and the summer of 2010. Those who participated got a
prorated salary equal to 20% of a regular salary, plus the benefits of a full-time employee. The
initiative applied to employees in Hong Kong, Macau and mainland China, where the firm's
employees numbered 8,500 in total. In 2010, Ernst & Young acquired Terco, the Brazilian
member firm of Grant Thornton.

In 2013, the firm officially changed its brand from Ernst & Young to EY, and christened the
accompanying tagline: "Building a better working world".
Also 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 2014, EY acquired global strategy consulting firm The Parthenon Group, gaining 350
consultants in its then-Transaction Advisory Services practice so that it could provide in-house
strategy consulting services to its clients. The business unit has since been rebranded as EY-
Parthenon and is one of the most selective strategy consultancies worldwide.

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

In 2017 EY announced it was opening an executive support center in Tucson, AZ, USA, creating
125 new jobs. That same year, the company opened a Digital Security Operations Center, located
in Muscat, Oman, to cover the EMEIA region as part of a $10 million investment.

In 2018, EY opened a $4.4 million professional services center in Louisville, KY, USA, creating
125 new jobs,and announced it would open an IT / tech hub in Nashville, TN, USA, creating 600
regional jobs.

Global Structure
The firm is organized geographically as follows:

1. EMEIA: Europe, Middle East, India and Africa

2. Americas
3. Asia-Pacific

Each area has similar identical business structure and a unique dedicated management team, each
led by an Area Managing Partner who is part of the Global Executive Board. In 2018, the
company underwent a transformation of some of its region borders, primarily a unification of its
CIS region (operating in the former Soviet Union) and the CEE region(Eastern Europe) to create
the CESA block.
The E&Y Knowledge Management Infrastructure
E&Y has put in place a central service responsible for internal knowledge management, the
Center for Business Knowledge(CBK). The center was originally modeled, together with CBKs
in Toronto, Paris and Sydney on the Cleveland CBK. It was given an official status in 1996 as
the knowledge team under the responsibility of Tim Curry. The center is in charge of:

• Strategic analysis at both industry and company level.

• The knowledge infrastructure. This involves designing tools, processes, and principles for
knowledge sharing throughout the organization.

• Specialist research services, offered to the rest of the firm on a cost recovery basis. These
services are delivered through a business research team and a strategy analysis team. These
teams carry out in-depth, focused analysis on demand.

The CBK headcount grew by 30% between the middle of 1998 and the beginning of 2000.

The firm’s approach to KM is, therefore, fairly centralized. E&Y thinks the centralized approach
is necessary to ensure adequate coordination of the knowledge efforts of the firm, develop and
apply common standards, and ensure best practice. This is, however, where the central role of
CBK stops. In other words, while the management of the knowledge is supported centrally,
knowledge itself is decentralized. A key feature of KM at E&Y is the building of knowledge
networks across the firm. Knowledge networks are virtual groups of people who participate in a
particular industry, process, or discipline. As often pointed out by CBK managers, the Center’s
role with regard to these networks can and should only be one of coordination.

Services

Over the course of its operations, EY has transformed its business model and diversified its pool
of offered services. Over the course of the last decade EY has substantially altered its business
approach to offer a more comprehensive scope of services. This is mainly attributed to an
intensified competition in the existing market of professional services, and competition in new
markets: investment banking and strategic consultancy. According to the latest published data,
the company has the following four main service lines:

 Assurance: comprises Financial Audit, Financial Accounting Advisory Services, and

Forensic & Integrity Services.
 Tax: Transfer Pricing, International Tax Services, Business Tax Compliance, People
Advisory, Global Trade, Indirect Tax, Tax Accounting & Risk Advisory Services, Tax
Technology and Transformation, Transaction Tax.
  Consulting: comprises two sub-service lines – Business Consulting and Technology
Consulting.
 Strategy and Transactions or SaT: deals with companies' capital transformation –
including Business Valuation and Economics, Due Diligence, Real Estate Advisory,
M&A, Restructuring (financial and operational), Corporate Finance Strategy.

EY Revenues by Service Line – in US$ millions

FY20 FY19 FY18 FY17 FY16

Assurance 12,800 12,646 12,534 11,632 11,301
Tax 9,800 9,460 8,995 8,179 7,751
Consulting 10,500 10,236 9,621 8,526 7,846
Strategy and Transactions 4,100 4,052 3,622 3,067 2,728
Total 37,200 36,394 34,772 31,404 29,626

Enviroment

The industry is very concentrated, the main players being E&Y, KPMG, PWHC and Deloitte
Their yearly revenues exceed $80 billion and their audit services cover the vast majority of
publicly trade and privately owned companies.

The audt division's customers are important global players from all industries in which the
company runs activities. By law companies that exceed a certain size have to organize audits,
The size parameters differ from one country to another, however, this suggests that the typical
audit customer is medium to large sized. A similar rationale applies lo the other divisions in the
company companies with global operations and/or complex strategies/actvities resort to E&Y’s
services to deal with vanous financial or business issues.

The company'S suppliers are critical for its success The first type of strategic supplers refers to it
solutions providers E&Yis committed 10 always improving its processes and the way to do so is
through permanent technological upgrade A second type of strategic suppiers includes the
marketing-retated ones E&Y is currently running the Entrepreneur of the Year campaign in 39
countries Previous winner of this program include Pierre Omydiar (Ebay). Howard Schultz
(Starbucks), Sergey Brin (Googie) and Larry Page (Google)

People

The people are the most important asset of the company. Their skills and abilities determine the
quality of their services, the image, the efficacy and results, etc E&Y s recruiting exceptional
individuals with qualities that meet the job profile.
The company is dedicated to always improving the work environment, which why for several
years in a row, E&Y has been included in Fortune Magazine's 100 Best Companies to Work for
list. The company is also dedicated to its diversity & inclusiveness HR strategy, which is focused
on offering equal treatment fo all employees disregarding their gender, sexual orientation of
religion.

Management Strategies

The management strategies cover a large number of departments within the company and they
tend to impact more than the department that made them.

E&Y was chosen to be subject of this study because the company has diverse strategies that
cover many department and because these strategies are complex enough to be used as an
example for other companies to follow.

Strategic Mergers And Acquisitions

E&Y was the result of successive mergers from the very beginning of its existence. Thus,
Whinney, Smith & Whinney merged with Ermst & Emst to form Ermst & Whinney and Ernst &
Whinney merged with Arthur Young to form Emst & Young In 2002, E&Y acquired Arthur
Andersen, which was bankrupted due to the Enron scandal Ail these series of acquisitions
enhanced the company's size and indirectly its capacity to serve more customers. expand its
operations both nationally and internationally and grow.

In the late 1990s, major concems about the potential conficts between audit and businesS
consultancy practiced by the same company have been raised Consequently in the eany 2000,
E&Y sold its consultancy operations to the French company Cap Gemini for $11 billion, which
later changed its name to Capgemini, Many saw this saie as ja strategic merger between an it
company and a strafegy & management enterprise with the ability to ofer to its customers a
wider range of services.

Employee Satisfaction

The company allocates a great deal of resources to identify employee satisfaction/dissatisfaction

drivers. Thus every year an employée satisfaction survey is sent across the company to all 700
locations worldwide. Employee satisfaction/dissatisfaction drivers are essential for the
management as satisfaction employee satisfaction determines the company's performance .

The survey ts also largeting infention to leave Ihe organization: In 2001, more 10% of the
employee ciearly stated that they wished to leave the organization when the survey took place.
This is also an indicator of the size of personnel the company can relay on in the close future.

This survey has been used fo defemine what exactiy drives employees! salisfaction The results
suggested that co-operation between units, salary level and leadership are positively correlated to
employee satistaction (Boselie and Van Der Wiele, 2001). Furthermore, the results suggested
that employees that are satisfied are less likely to leave the organization than the dissatisfied
ones.

essential in any organization, but it's very This strafegy sults the company's needs as employee
satisfaction is essential in any organization, but it's very difficult to manage in the context of
global operalions The results of the study are a good indicator for E&Y what tools to use for
increase employee satisfaction and indirectly performance and reveal the issues that need
improvement.

Public Disputes
Audit Practices

Ernst & 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), Olympus Corporation (2011), Wirecard (2020)[57] and
NMC Health (2020).

In 2004, Ernst & Young was punished for forming a lucrative business arrangement with one of
its audit clients, PeopleSoft, thus creating a conflict of interest. As a result, the firm was barred
by the SEC from accepting any new publicly traded companies as audit clients for six months.

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."

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.

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 $8.5 million.

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.

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.

In February 2017, in response to questions regarding misissued certificates, Symantec stated they
would no longer accept WebTrust audits from E&Y Korea and E&Y Brazil due to deficiencies
in these audits.

According to The Wall Street Journal, in 2019, EY had audited WeWork the office-space
company that "nearly collapsed after fumbling a planned initial public offering".

In April 2020, a former partner and whistleblower was awarded $11 million for ethical
misconduct by EY in a Dubai gold audit by the high court in London. EY commented they will
appeal.

In 2020, EY failed to uncover $2 billion that was missing at Wirecard AG, a German fintech
payment processing company.This resulted in a lawsuit filed against EY in June 2020.An
investigation by the German Parliament, Bundestag, revealed in April 2021 that EY's audits of
defunct payments group Wirecard suffered from serious shortcomings over a period of years.

EY also failed to identify $300 million in "fabricated sales" in their 2020 audit of the a coffee
chain Luckin Coffee Inc. and $5 billion in "undisclosed debt" at NMC Health PLC and Finablr
PLC
Corporate Affairs And Culture
 EY's publicity activity includes its World Entrepreneur of the Year Award 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 (NES), an initiative developed
for business which sets clear equality, diversity and inclusion (EDI) criteria against which
companies are assessed.
 EY in the UK has set up EY Foundation, a new UK charity set up to support young
people and entrepreneurs.

E&Y In Bangladesh
ECOVIS A.Qasem & Co. (ECOVIS Bangladesh) is one of the oldest professional accounting
firms in the country, founded in 1953 by Late Mr. Abul Qasem, FCA, who was also the first
President of the Institute of Chartered Accountants in Bangladesh. ECOVIS A. Qasem & Co.
(ECOVIS Bangladesh) serves their esteemed clients with 8 partners and over 300 professional
staff across 3 offices in 2 major cities of Bangladesh, Dhaka and Chittagong. ECOVIS A. Qasem
& Co. (ECOVIS Bangladesh) has been associated with various reputed international networks of
professional firms since 1978, namely Coopers & Lybrand (C&L), PricewaterhouseCoopers
(PwC), and Ernst Young (EY). Their most recent association was with EY as a Member Firm
from January, 2015 until February, 2021. This long history of foreign affiliations provided them
the unique opportunity to work with hundreds of clients across the globe, understand diverse
requirements, gain expert knowledge on global accounting and auditing standards, and afford
international exposure to their valuable workforce.

ECOVIS A. Qasem & Co. (ECOVIS Bangladesh) offers their clients and stakeholders an
unmatched service experience in Assurance, Advisory and Tax. The Firm has an outstanding
team of professionals, with in-depth knowledge of IFRS, specialised sector experience, and
exposure of working with companies across the globe.