On Tuesday, the Securities and Exchange Commission (SEC) fined Ernst & Young $11.8 million after allegations that the firm failed to uncover deceptive accounting which inflated earnings at one of its audit clients. Allegedly, the firm disregarded red flags and failed to detect moves that Weatherford International (an oil services company) made to manipulate its income-tax reporting, which resulted in the company earning hundreds of millions of dollars over four years. Weatherford paid $140 million last month to settle separate fraud allegations with the SEC. The SEC claimed that auditors were aware of Weatherford’s adjustments after it completed its financial statements to significantly lower its income taxes, but the firm used unsubstantiated explanations instead. Ernst & Young’s settlement included a $1 million fine and disgorgement of $9 million. The money will be returned to investors who were harmed by the fraud.
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