Shell Drops EY, Four Partners Exit After Audit Independence Breach

How a Corporate Governance Fumble Triggered a Regulatory Probe and a Boardroom Shake-Up

By John Donovan— Opinion/Analysis

Date: February 12, 2026

In a rare public rebuke of one of the Big Four accounting firms, global energy giant Shell Plc has moved to sever its long-standing audit relationship with Ernst & Young (EY) after independence breaches in EY’s audit of Shell’s financial statements came to light. The fallout has already seen four EY partners depart, regulators launch formal investigations, and a new auditor — PricewaterhouseCoopers (PwC) — lined up to take over. 

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What Happened? The Audit Breach That Sparked a Shake-Up

According to Reuters reporting on Financial Times sources, four EY partners left the firm late last year amid scrutiny over breaches of established audit independence rules. These departures — including some directly linked to the Shell engagement — were part of EY’s effort to contain the damage after Shell publicly disclosed compliance failures in its audit. 

Shell had revealed in a July 2025 regulatory filing that EY’s audit of its 2023 and 2024 accounts did not comply with strict partner rotation rules under both US Securities and Exchange Commission (SEC) and UK ethical standards. Rules designed to preserve auditor independence limit how long the same lead partner can oversee a major company’s financial audit, generally to around five to seven years. 

Shell said that, after EY self-reported its failure to rotate the lead partner within the permitted period, the audit and risk committee required a new partner to review the earlier work and concluded that the audited financial statements themselves did not need retrospective amendments — but the procedural breach remained significant. 

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Regulators Step In: Formal Investigations Underway

This procedural misstep has not been treated lightly by British authorities. In December 2025, the UK’s Financial Reporting Council (FRC) — the country’s top audit regulator — opened a formal investigation into EY’s 2024 audit of Shell’s accounts to assess whether ethical requirements were genuinely violated. 

Importantly, the FRC’s probe focuses on whether professional standards were breached — not necessarily whether Shell’s reported financials were materially wrong. The regulator’s Enforcement Division will decide if EY’s conduct fell short of the independence and ethical standards auditors must meet. 

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Shell’s Response: A New Auditor on the Horizon

Faced with this regulatory noise and corporate governance embarrassment, Shell embarked on a rapid tender process for a new auditor. Despite EY being appointed only recently for a term of up to ten years, Shell has selected PwC to take over audit duties starting with the financial year ending December 2027, subject to shareholder approval. 

EY will continue to audit the company through the end of 2026, but the accelerated decision to switch firms — usually a process measured in years — underscores how seriously Shell’s leadership views the need to restore trust and comply with ethical standards. 

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Why This Matters

Auditor independence is central to investor confidence. When major firms like EY remain too cozy with their clients, the risk of complacency or compromised reporting rises — a concern long flagged by regulators worldwide. The Shell episode comes amid wider scrutiny of audit quality across the Big Four, which have faced criticism for failing to catch problems at other major corporations in recent years. 

From a governance perspective, the situation highlights:

• The consequences of procedural lapses in the audit function, even if numbers themselves are accurate.

• Increased regulatory vigilance as accounting watchdogs push back against lax independence enforcement.

• Reputational risk to auditors, whose credibility hinges on both perception and strict rule compliance.

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Bottom Line: More Than a Technicality

Although the accounting irregularity with EY did not require restating Shell’s earnings or materially affect reported financial results, it damaged confidence in the audit process — enough for an energy titan to look elsewhere. And with formal investigations ongoing, both EY and the broader audit profession will be watching closely for regulatory outcomes that may reshape expectations for auditor rotation and ethical compliance in the years ahead.

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