Audit regulators have censured an Ernst & Young auditor for tampering with work papers when a completed audit came up for inspection.

The Public Company Accounting Oversight Board disciplined Jacqueline Higgins, a manager in E&Y’s Boston office, alleging repeated violations of documentation standards and requirements to cooperate with the board’s inspection process. The disciplinary action published by the PCAOB says Higgins removed, added and backdated work papers related to an audit of 2009 financial statements for an unnamed company that E&Y had audited since 2002.

The PCAOB order says Higgins was supervised by an unnamed engagement partner and an unnamed senior manager at E&Y during the course of the audit, but was removed from the engagement in July 2010 and stopped participating in issuer audit engagements. E&Y spokesman Charles Perkins said all three individuals named in the disciplinary order were placed on administrative leave, and the partner and senior manager have since been fired. Higgins is on leave through the end of the year and then will leave the firm, according to Perkins.

“Our firm policy clearly prohibits persons from supplementing audit workpapers in circumstances like those described in the disciplinary order,” said Perkins in a prepared statement. The firm advised the PCAOB of the actions it took internally and have cooperate with the PCAOB through its investigation, he said.

The PCAOB says Higgins, the engagement partner and the senior manager began working together to prepare for a PCAOB inspection of the audit in question. The engagement partner and senior manager instructed Higgins to alter the documentation in the audit file based on some documentation that was missing. They also instructed Higgins to remove a tie-out of the financial statements that was based on a pre-final set of financial statements and replace it with a different version of the tie-out, backdated to align with the original audit dates.

The action against Higgins does not carry any fine or penalty beyond the public censure. It is the first disciplinary proceeding brought by the PCAOB against E&Y. Since its inception under Sarbanes-Oxley, the PCAOB has finalized fewer than three dozen disciplinary actions, and only a tiny fraction of those have grazed the Big 4. The board has appealed to Congress to lift the veil of confidentiality to its enforcement process to help move cases through the pipeline more efficiently.

At a national conference of the American Institute of Certified Public Accountants this week, PCAOB Acting Chairman Daniel Goelzer said the PCOAB has opened 27 formal and informal investigations in 2010 focused on a mix of large and small firm matters. “Our enforcement cases involve serious violations of our rules and standards and serious deviations from the public’s expectations of the auditing profession,” he said.

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