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    Our commitment toexecuting quality audits

    Information for audit committees

    Ernst & Young LLPNovember 2012

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    Auditors play a vital rolein the ef cient functioningof the capital markets. Werecognize and embracethe responsibility that hasbeen entrusted to us asindependent auditors.

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    1Document title Additional text

    Contents

    Letter from Steve Howe and Tom Hough 2

    Our commitment to executing quality audits 5

    The importance of communication 6

    Global integration and how it supports audit quality 7

    The Firms quality control system 8

    Instilling professional values across the organization 9

    Our audit quality support structure 10

    How we work to perform quality audits 13

    Integrated multidisciplinary service delivery 15

    Our accounting and auditing review and consultation process 16

    Our client acceptance and continuance procedures 18

    Our recruiting and professional development objectives 19

    Our compliance with legal requirements 22

    Our independence procedures and monitoring efforts 23

    Our practices related to evaluating and compensating our audit partners 26Our internal and external inspection programs 27

    Appendix A: Glossary 33

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    2

    From an of ce opened in Cleveland, Ohio, by theErnst brothers in 1903 and one in Chicago, Illinois,started by Arthur Young in 1906, Ernst & Younghas grown to be a worldwide professional servicesorganization of more than 167,000 people operatingin more than 140 countries a global leader inassurance, advisory, tax and transaction advisoryservices.

    Quality audits instill con dence in and credibility tothe nancial reporting that is so vital to the ef cientfunctioning of the capital markets. The substantialprocedures and analyses performed by theindependent auditor enable the auditor to opine onan entitys nancial statements and, for certain publiccompanies, internal control over nancial reporting.Performing this work with integrity, expertise,objectivity and professional skepticism is at the heartof our responsibility as independent auditors aresponsibility we take most seriously.

    Our commitment to audit quality means we mustmake continuous investment and continuousimprovement. Audits cant be static and remaineffective over time. Audits are conducted in adynamic marketplace with increasingly challengingand complex business activities. We recognizethe importance of this role and take seriouslyour commitment to executing quality audits. Ourorganizational structure, methodologies, policies,practices and procedures are all designed to ful llthat important responsibility.

    The enactment of SOX marked a signi cant milestonein the US audit professions history by moving the

    audit profession from self-regulation to the regulatedenvironment of the Public Company AccountingOversight Board (PCAOB). We have supported thisexpansion in regulatory oversight of our audits ofpublic companies because it has contributed torebuilding con dence in the capital markets andimproving the quality of our work.

    The importance of the audit practice to EY

    The assurance practice (including audit) is the Firmslargest service line. Performing audits is our largestactivity and is our central priority critical to ourbrand in the marketplace. In the US, EY audits morethan 4,000 entities. They range from multi-nationalpublic companies operating around the globe that

    le nancial statements with the Securities andExchange Commission (SEC) to privately -held,family-owned businesses that may supply nancialinformation to a local lender. These entities operate inmyriad industries from software to nancial services,from retail to real estate, from energy to consumerproducts and the public sector.

    Who is accountable for audit quality?

    The answer here is simple: We all are. Theresponsibility for quality begins at the top of theglobal organization at the Global and AmericasExecutive Boards and senior leadership level of the

    Firm and runs throughout the Firm to our partnersand to our professional staff in all of our service linesinvolved in performing and supporting audits. Inshort, the responsibility for quality is an importantattribute of everyone who works at an Ernst & Young

    rm. We are mindful of the public franchise that hasbeen entrusted to us. We recognize and embrace theresponsibility that this role represents and take ourobligation to serve the public interest as independentauditors seriously.

    How is the Firm investing in the audit practice toenhance audit quality?

    Our ve major quality initiatives are described in theintroductory letter from Steve Howe and Tom Hough.Those initiatives (Resources and workload, Training,Audit tools, Top-down emphasis on audit quality andAccountability for audit quality) represent signi cantmulti-million- dollar investments in our audit practice.These initiatives represent a major focus of ourongoing commitment to executing quality audits.

    We are pleased to present this report discussing the commitment of Ernst & Young LLP

    (the Firm or EY) to executing quality audits and describing our system of quality control.Quality is the bedrock of what we do every day. As a leader in the audit profession, wemust serve our stakeholders with passion and integrity and ful ll our independent roleto serve with objectivity and skepticism, excellence and professionalism. Our audit practiceis not just our largest service offering; it is central to our brand a brand that de nesour organization.

    Since the enactment of the Sarbanes-Oxley Act of 2002 (SOX), many audit committeeshave taken on a greater role in the oversight of a companys nancial reporting and itsdealings with the independent auditor. Empowered and independent audit committees playa vital role on behalf of shareholders in promoting audit quality, protecting independenceand preventing con icts of interest. The global Ernst & Young organization is committed torobust and transparent communication with audit committees. We also believe that greaterinvestor understanding of audit rms quality control systems and the measures such audit

    rms are taking to improve audit quality could further bolster con dence in the profession.

    The purpose of this report is to describe the system of quality control for the audit practiceof EY, the US member rm of Ernst & Young Global Limited (EYG), and the signi cantinvestments we have made and continue to make to enhance audit quality. We describethe global Ernst & Young organization, processes and procedures that have one goal providing seamless, consistent quality service worldwide to stakeholders. While EYG hasmade signi cant investments in organizing the network of member rms around the worldand operating as a highly integrated, multidisciplinary global organization, this reportfocuses on the Firms US audit practice, the investments we have made in people andprocesses in the US, and initiatives resulting from practice monitoring activities, includinginternal and external inspection ndings. For more information on the global Ernst & Youngorganization, please refer to the Transparency Report 2012: Ernst & Young Global , which is

    available on our website at www.ey.com.

    Audits in todays complex nancial environment require outstanding people supportedby an organization with a clear focus on quality. Our passion for quality begins at thetop of the global Ernst & Young organization, permeates every level and is an ongoingcommitment. To execute quality audits in todays complex and challenging environment,we focus on our organization, our service delivery model, including professionalssupporting audit engagement teams, our people, our policies and procedures, and ourmonitoring activities by:

    Developing and executing a common global audit methodology designed to achievequality audits with seamless, consistent service regardless of location

    Supporting an audit delivery model with an organization where a quality tone is stressed

    throughout and signi cant investments are directed to continuously maintain a robustsystem of quality control

    Fostering a culture where all professionals are held accountable for their performance

    Accepting and retaining clients that share our values for integrity in nancial reporting

    Attracting and developing the best talent from various professional disciplines toconduct audits in an independent, objective fashion with integrity and professionalskepticism

    Audit committee chairs and members

    Stephen R. Howe, Jr.Managing PartnerErnst & Young LLP

    G. Thomas HoughVice Chair ofAssurance Services

    Ernst & Young LLP

    2

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    3Our commitment to executing quality audits

    From an of ce opened in Cleveland, Ohio, by theErnst brothers in 1903 and one in Chicago, Illinois,started by Arthur Young in 1906, Ernst & Younghas grown to be a worldwide professional servicesorganization of more than 167,000 people operatingin more than 140 countries a global leader inassurance, advisory, tax and transaction advisoryservices.

    Quality audits instill con dence in and credibility tothe nancial reporting that is so vital to the ef cientfunctioning of the capital markets. The substantialprocedures and analyses performed by theindependent auditor enable the auditor to opine onan entitys nancial statements and, for certain publiccompanies, internal control over nancial reporting.Performing this work with integrity, expertise,objectivity and professional skepticis