US regulator fines and bans EY Canada partner over energy company audit

11 January 2023 2 min. read
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The Public Company Accounting Oversight Board (PCAOB) last month sanctioned Martin Lundie for a flawed audit of Just Energy Group, an Ontario-based retail energy company.

Lundie – who retired from EY’s Toronto office on December 31 – failed to adequately evaluate a key estimate related to Just Energy’s customer receivables, according to the US auditing watchdog. Lundie also failed to obtain adequate support for assumptions used in his evaluation of the estimate, the PCAOB said.

Lundie served as lead auditor on Just Energy’s 2019 audit and authorized the issuance of an unqualified opinion on the company’s financial statements – finding no “material weaknesses” in internal controls. Just Energy within months restated its financials, admitting it had underestimated its allowance for bad debts by $111.2 million.

The PCAOB imposed a US$65,000 fine on Lundie and barred him from working with public accountancies registered in the US for one year, including EY Canada. Lundie admitted no wrongdoing in the settlement.

US regulator fines and bans EY Canada partner over energy company audit

Just Energy – which filed for creditor protection in 2021 and emerged as a private company last month – was previously listed on the Toronto Stock Exchange and New York Stock Exchange, with the latter granting US jurisdiction over its financial reporting.

The Canadian Public Accountability Board (CPAB), which is generally viewed as being more lenient than its US counterpart, has not announced any actions against EY. The Chartered Professional Accountants of Ontario, which disciplines individual accountants in the province, has also not announced enforcement action.

“We’re not able to comment on the settlement for this individual, whose career is otherwise characterized by a valuable contribution to our firm, its clients, and the community,” EY spokesperson Victoria McQueen told the Globe & Mail. “The event here occurred over three years ago, and does not include any action against the firm or any allegations concerning its system of quality control.”

EY Canada and Just Energy are facing an Ontario class action securities-fraud lawsuit that alleges Just Energy made inadequate disclosure about its material internal control deficiencies, leading to understatement of its bad debt allowances.