Ernst & Young 2018 profits fall by 16.9% as effects of 2017 Bank of Uganda suspension make full impact

The 2017 Bank of Uganda suspension against Ernst & Young (EY) from auditing financial institutions may have ended, but its effects have lingered on, affecting the audit firm’s 2018 revenues and profits.

EY was in 2017 suspended for one year, due to a pre-qualification glitch. Apparently, according to Geoffrey Byamugisha, the EY country leader, their pre-qualification documents for 2017 were submitted to a wrong office at Bank of Uganda. As a result the  audit firm did not appear on the 2017 list of 104 pre-qualified external auditors for commercial banks, credit institutions, micro-finance deposit-taking institutions and foreign exchange bureaus & money remitters.

According to EY’s financials seen by this reporter, although EY survived 2017, barely unscathed, because the bulk of the 2017 audit work extends to the following year, the firm felt the full impact of the ban in 2018.

In 2017, EY registered a 14.46% rise in gross earnings- from UGX14.69 billion to UGX16.76 billion. Profit went up 22.5% from UGX2.91 billion to UGX3.56 billion.

However in 2018, gross earnings largely stagnated, declining slightly by 0.33% to UGX16.76 billion compared to UGX16.81 billion the previous year. However, profits declined considerably, by 16.9% from UGX3.56 billion in 2017 to UGX2.95 billion.

CEO East Africa Magazine, examined audited results of 23 out of 24 commercial banks and there was non-audited by EY. 

3 of the other ‘big 4’ audit firms ruled the audit ‘feast’.

Deloitte & Touche audited 8 banks, followed by PricewaterhouseCoopers who audited 7 banks. KPMG audited 6 banks while little-known Grant & Thorntorn audited 2 banks.

KPMG however dominated the big banks, auditing 4 of the 10 biggest banks- including Stanbic Bank, the biggest. Deloitte and PricewaterhouseCoopers each audited 3 of the top 10 banks.

So lucrative is the bank audit business, that Stanbic Bank alone in 2017 paid UGX869.9 million in audit fees. This increased to UGX 1 billion in 2018. 

A clause in the Financial Institutions Act (FIA)- Section 67, that allows financial institutions to use one external auditor for up to 4 years, is likely to lock out EY out of the lucrative sector for a little bit longer.