19 April 2004

New Clients Barred From Ernst & Young

New Clients Barred From Ernst & Young:

(Associated Press) -- Found to be auditing the books of a company it had a profitable consulting business with, the large accounting firm Ernst & Young has been barred from taking on new corporate clients for six months.

The New York-based firm, which said Friday it did not plan to appeal the ruling by an administrative law judge at the Securities and Exchange Commission, was also ordered to pay $1.7 million in restitution, plus interest for violating rules on auditor independence.

The judge found the firm had improperly marketed consulting and tax services with PeopleSoft Inc., a maker of computer software.

It was the first time the SEC had sought the suspension of a major accounting firm since 1975.

Ernst & Young, the nation's third-largest accounting firm, had previously argued its conduct was appropriate and met professional standards. The company said it is 'fully committed' to working with the SEC-approved independent consultant it must hire under the judge's order to oversee its policies and internal controls.

SEC enforcement attorneys had been seeking since 2002 to have Ernst & Young temporarily barred from taking on any publicly traded companies as new audit clients.

The issue of auditor independence was among those at the heart of the Enron scandal, which raised questions about Enron's longtime accountant, Arthur Andersen LLP, having done both auditing and consulting work for the energy trading company.

Andersen was convicted in June 2002 of obstruction of justice for destroying Enron audit documents.

In her ruling Friday, administrative law judge Brenda Murray said the evidence showed that Ernst & Young 'has an utter disdain' for the SEC's regulations on auditors' independence.

Murray also said it was evident that the firm does not have and was not putting in place 'policies and procedures that can reasonably be expected to ensure compliance with independence rules in business dealings with audit clients.'

In the administrative proceeding, the SEC said Ernst & Young was auditing PeopleSoft's books at the same time it was developing and marketing a software product in tandem with the company. Ernst & Young engaged in the dual activities from 1993 through 2000, according to the SEC."

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