KEY POINTS
- UK regulator opens investigation into EY’s audit of Shell’s 2024 accounts over partner rotation breaches
- EY says it reported the issue to the Financial Reporting Council and will co-operate fully with the probe
- Shell says its 2023 and 2024 financial statements remain unchanged despite updated audit opinions
Britain’s accounting regulator has launched an investigation into Ernst and Young’s, EY, audit of Shell’s 2024 financial statements, escalating scrutiny of compliance failures linked to mandatory partner rotation rules that had earlier forced the energy major to revisit its annual reports.
The Financial Reporting Council said the probe will examine whether EY breached ethical standards governing how long senior audit partners can remain on a single engagement. The investigation follows disclosures by Shell in July that its auditor had failed to comply with rotation requirements set by US regulators, though the company maintained that its underlying financial figures were unaffected.
Shell said at the time that it would update its 2023 and 2024 annual reports, without restating the financial statements themselves, after EY concluded that its US audit opinions for the two years should no longer be relied upon. A new partner was appointed to reissue the opinions.
Regulators Turn Focus to Audit Governance and Oversight
Under US Securities and Exchange Commission rules, lead and reviewing audit partners must rotate off an engagement after five years and observe a five-year cooling-off period, while other key partners face a seven-year limit followed by a two-year break. EY later determined that similar time limits under the FRC’s revised ethical standards in the UK had also been exceeded on the Shell audit.
“As disclosed on 2 July 2025, EY UK determined that time limitations under the FRC’s Revised Ethical Standard regarding rotation of partners on one engagement had been exceeded and reported this matter to the FRC,” the firm said in a statement, adding that it would fully co-operate with the investigation.
The FRC said its conduct committee approved the opening of the probe on October 21, with the regulator’s enforcement division tasked with carrying out the investigation. The watchdog’s inquiry will focus specifically on EY’s audit work on Shell’s 2024 accounts.
Shell, responding to questions from Reuters, referred back to its earlier statement and reiterated that both its 2023 and 2024 financial statements remain unchanged. No amended filings were required in the UK, despite the rotation breaches identified by EY.
The case adds to mounting regulatory pressure on large audit firms as authorities intensify oversight of governance, independence and quality controls across the profession. For Shell, one of the world’s largest energy producers, the episode underscores the operational and reputational risks that can arise from audit compliance failures, even when financial results are left intact.
