By Eveline Danubrata
JAKARTA (Reuters) - An Indonesian affiliate of global accounting firm Ernst & Young (EY) [ERNY.UL] has agreed to pay a fine of $1 million after the U.S. audit regulator labeled lapses in its checks of a client's books "audit failure".
The settlement, announced on Thursday by the Public Company Accounting Oversight Board (PCAOB), is the culmination of the latest incident that has raised concern about whether major accounting firms can police affiliates in emerging markets.
Just two months ago, the Brazilian unit of Deloitte & Touche LLP [DLTE.UL] agreed to pay a PCAOB fine of $8 million to settle civil charges that it issued and tried to cover up false audit reports.
In the case of EY, the regulator said an Indonesian member of EY's global network, KAP Purwantono, Suherman & Surja, released an audit report of an Indonesian telecommunications firm in 2011 featuring opinions based on insufficient evidence. (http://bit.ly/2kOe0Ne)
A U.S.-based EY partner who reviewed the audit had raised concerns that the telecommunications firm had not provided enough support for the accounting of over 4,000 leases for space in its cellular towers.
The affiliate nevertheless released an unqualified audit opinion, the PCAOB said.
The regulator also said that shortly before it inspected the audit in 2012, the affiliate "improperly" created dozens of new audit work which hampered the inspection.
The PCAOB subsequently imposed a $1 million civil penalty on the affiliate and sanctioned two individuals: 2011 engagement partner Roy Iman Wirahardja and James Randall Leali, a former professional practice director for EY across the Asia-Pacific.
"In their haste to issue audit reports for their client, the firm and two partners shirked their fundamental duty to obtain sufficient audit evidence," said Claudius B. Modesti, director of the PCAOB Division of Enforcement and Investigations.
Wirahardja - who has since left the affiliate - and Leali neither admitted nor denied the issues raised by PCAOB, the regulator said.
EY, in an emailed statement, said conduct at the center of the issue went against its global code.
"Since the events in this matter, we have continued to strengthen the rigor in our global audit processes and policies."
(Reporting by Eveline Danubrata; Editing by Christopher Cushing)