U.S. audit regulators have demonstrated their overseas reach and delivered a blow to an Indonesia firm affiliated with EY, extracting a $1 million settlement over charges of audit failure, noncooperation, and standards violations.

The Public Company Accounting Oversight Board says it learned through its inspection program of a failure in a 2011 audit of an Indonesian telecommunications company performed by EY affiliate KAP Purwantono, Suherman & Surja. The PCAOB also censured, fined and barred the engagement partner, who is no longer with the firm, and censured, fined and restricted a former professional practice director at the firm. With no admissions or denials of the allegations, the board says it also granted extraordinary cooperation credit to a member of the audit engagement team who assisted with the investigation.

The PCAOB says a U.S.-based EY partner reviewing the engagement as required under PCAOB standards called out an apparent failure at the Indonesian firm to obtain sufficient audit evidence of more than 4,000 leases for spaces on cellular towers asserted in the telecommunications company’s financial statements. The Indonesian firm issued an unqualified opinion before obtaining a completed analysis, the PCAOB says.

As PCAOB inspectors descended to begin their work in 2012, members of the EY Indonesian engagement team created “dozens” of new audit work papers, the board says, including one produced and provided during the inspection. Then the firm and its engagement partner failed to cooperate with the board’s investigation, the PCAOB says.

EY said the conduct in the action violates its code of conduct and other policies and practices. "Since the events in this matter, we have continued to strengthen the rigor in our global audit processes and policies," a spokesman said. "We continually review and enhance our audit procedures, electronic tools, policies and training for our people around the world."

In a statement, PCAOB Chairman James Doty indicated audit firms doing business in U.S. capital markets should expect their work to be scrutinized by U.S. regulators. “Wherever located, all audit firms that elect to register with the PCAOB must ensure that they and their personnel comply and cooperate with PCAOB inspections and investigations,” he said. The board settled a much larger action in late 2016 involving Deloitte affiliates in Mexico and Brazil.

The board’s ability to deliver on that level of enforcement has been hampered by conflicts with laws in other countries, and the board has spent years hammering out cooperative agreement with regulators in numerous jurisdictions to carry out its inspections. The board remains shut out of only a handful of jurisdictions, most notably China and Hong Kong, but also Belgium, Ireland, Poland, and Portugal.

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