EY Shrinks Roster of Audit Clients in Bid to Improve Performance
Barnes & Noble Education Inc. and The Children’s Place Inc. are among the audit clients Ernst & Young LLP has dropped in recent months as the firm looks to trim its portfolio and rebound after regulators found that more than a third of its inspected audits missed the mark.
The Big Four firm typically tops its competitors by auditing the most US-listed companies. It had 971 listed clients as of January, according to Ideagen Audit Analytics, and a tech-heavy roster that included Apple, Alphabet, and Meta.
But EY lost a net 17 clients during the first quarter of this year in sharp contrast to peers that added accounts or were roughly flat. In comparison, the firm shed a net 19 clients total in 2023—only BDO USA P.C. and Marcum LLP dropped more audit clients that year.
“Our leadership position has enabled us to be deliberate in our efforts to focus our client portfolio to enhance audit quality,” the firm said in a statement. The reduction, while small, “was intentional.”
EY also ended its work with life sciences companies Ocugen Inc. and Traws Pharma Inc., according to corporate reports filed with the Securities and Exchange Commission.
Audit client portfolios shift from quarter to quarter as companies merge, enter bankruptcy or delist from US exchanges. Companies might choose to hire another firm in search of lower fees or due to disagreements with their auditors.
Breaking From Its Peers
EY’s competitors, however, are holding on to more clients in comparison.
Deloitte & Touche LLP netted nine new clients and KPMG LLP added 12 net clients in the first quarter of the year while PwC LLP had a net loss of one client, according to Audit Analytics data.
New technology enables KPMG to bring on new clients, growing its roster while maintaining quality, the firm said in a statement.
Deloitte and PwC, also known as PricewaterhouseCoopers, did not immediately respond to a request for comment.
Deciding which clients to work with is a key aspect of how firms manage their audit practices. New international audit rules and similar pending US requirements task firms with establishing guardrails to address the risks they face in their routine practices.
The US audit regulator has pressed firms to bolster those internal checks to improve audit quality and reverse a rising trend of inspection violations. Almost half of all audits reviewed last year fell short of meeting basic standards.
EY has launched a series of reforms meant to address lapses in its own work. The firm’s latest inspection report found 37% of its audits failed to meet standards—an outcome the firm called “unacceptable.”
Among its reforms, EY updated evaluations for partners and firm leaders and has focused on standardizing its audit methods. Those and other updates, described in a report issued last November, should improve its performance in future inspections, the firm said.
BDO, like EY, has also trimmed its book of audit clients among other efforts including restructuring its audit practice in a bid to reverse a track record that trails its peers. Inspectors found fault with 86% of BDO’s audits reviewed last year.
