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Ernst & Young barred from adding clients
Washington, Apr 17: A judge suspended Big Four accounting firm Ernst & Young LLP from accepting new, SEC-registered audit clients for six months in a case involving software group PeopleSoft Inc .
Washington, Apr 17: A judge suspended Big Four accounting firm Ernst & Young LLP from accepting new, SEC-registered audit clients for six months in a case involving software group PeopleSoft Inc .
Securities and Exchange Commission Chief Administrative Law Judge Brenda Murray also ordered Ernst & Young (E&Y) to pay $1.7 million in disgorgement, to refrain from future violations and to hire an outside consultant to review its policies.
The $1.7 million that E&Y will have to pay roughly equals the amount of audit fees it charged PeopleSoft for fiscal years 1994 through 1999, Murray said.
The SEC in mid-2002 accused E&Y -- the No. 3 U.S. accounting firm -- of violating auditor independence rules by working too closely with PeopleSoft, an audit client, on a software project.
The judge ruled "that E&Y engaged in improper professional conduct because it violated applicable professional standards for auditors by conduct that was both reckless and negligent."
Murray also found that a licensing agreement between E&Y and PeopleSoft related to the project "created a direct business relationship," and that it was reasonable to argue that E&Y "would not be objective in its audit of PeopleSoft."
"E&Y's misconduct was blatant ... There is nothing in this record that shows that E&Y is willing to accept the auditor independence rules applicable to business relationships with audit clients," she said.
Decisions by SEC administrative law judges may be appealed to the full five-member commission and then to the courts. A spokesman for the commissioners declined to comment.
"We're very gratified by the ALJ's decision," said Paul Berger, an associate director of the SEC's enforcement division that brought the case.
In a statement, E&Y said it is "fully committed to working closely with an outside consultant."
"While the order will prevent us from accepting new public company audits for the next six months, it will not impair our ability to continue to serve our existing public company audit clients, accept new audit work from privately held companies, or to accept non-audit work from public companies we do not audit," the firm said. Bureau Report
The $1.7 million that E&Y will have to pay roughly equals the amount of audit fees it charged PeopleSoft for fiscal years 1994 through 1999, Murray said.
The SEC in mid-2002 accused E&Y -- the No. 3 U.S. accounting firm -- of violating auditor independence rules by working too closely with PeopleSoft, an audit client, on a software project.
The judge ruled "that E&Y engaged in improper professional conduct because it violated applicable professional standards for auditors by conduct that was both reckless and negligent."
Murray also found that a licensing agreement between E&Y and PeopleSoft related to the project "created a direct business relationship," and that it was reasonable to argue that E&Y "would not be objective in its audit of PeopleSoft."
"E&Y's misconduct was blatant ... There is nothing in this record that shows that E&Y is willing to accept the auditor independence rules applicable to business relationships with audit clients," she said.
Decisions by SEC administrative law judges may be appealed to the full five-member commission and then to the courts. A spokesman for the commissioners declined to comment.
"We're very gratified by the ALJ's decision," said Paul Berger, an associate director of the SEC's enforcement division that brought the case.
In a statement, E&Y said it is "fully committed to working closely with an outside consultant."
"While the order will prevent us from accepting new public company audits for the next six months, it will not impair our ability to continue to serve our existing public company audit clients, accept new audit work from privately held companies, or to accept non-audit work from public companies we do not audit," the firm said. Bureau Report