Britain’s accounting regulator has launched a formal probe into Ernst & Young’s audit work for Shell plc after the firm admitted it failed to comply with audit partner rotation requirements, drawing renewed attention to auditor independence at one of the world’s biggest energy groups.
The Financial Reporting Council said it is reviewing EY’s statutory audit of Shell’s 2024 consolidated financial statements, with a particular focus on whether rules limiting how long a lead audit partner can remain on a single engagement were breached.
The investigation follows Shell’s disclosure in July that Ernst & Young had exceeded permitted partner tenure under both UK and US independence standards. As a result, the oil major was forced to amend its 2023 and 2024 Form 20-F filings in the United States after EY concluded its original audit opinions could no longer be relied upon, having been signed off by a partner who had overstayed the allowable period.
Ernst & Young said it had reported the issue to the FRC once it was identified, confirming that revised ethical standards on partner rotation had been breached. Fresh audit opinions were subsequently issued by a different partner. Shell’s underlying financial statements were not altered and the revised opinions remained unqualified.
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The firm has maintained that the breach was procedural rather than substantive, arguing that no restatement was required and that corrective measures have already been implemented. While no amended filings were needed in the UK, the FRC has now moved to determine whether EY failed to meet ethical obligations governing audit independence.
Rules on partner rotation are designed to prevent excessive familiarity between auditors and clients by requiring regular changes in senior audit leadership. Even where company accounts remain accurate, breaches can invalidate audit opinions.
The case, authorised by the FRC’s Conduct Committee in October, will be handled by its Enforcement Division. The regulator emphasised that opening an investigation does not imply misconduct or pre-empt its conclusions, but it does underscore the heightened scrutiny surrounding audit independence in long-running corporate engagements.
