Posted on 04/28/2004 7:21:49 AM PDT by wallcrawlr
Arguing that Ernst & Young engaged in "improper professional conduct" an administrative law judge on Friday suspended the Big Four accounting firm from accepting new publicly traded companies as audit clients for six months and ordered the company to make $1.7 million in restitution, the Wall Street Journal reported.
The case was brought by the enforcement division of the Securities and Exchange Commission, which claimed auditor independence issues in Ernst’s relationship with audit client PeopleSoft. Despite earlier vows to appeal any decision that found its conduct to be inappropriate, Ernst said Friday it will not appeal the judge’s decision and will work with the SEC-approved independent consultant that the judge ordered be hired by the company to look at its policies and internal controls, the Journal reported.
At the heart of the SEC’s claim is that Ernst entered into a joint marketing agreement in the 1990s with PeopleSoft at the same time that Ernst was the Pleasanton, CA software company’s auditor. SEC rules state that auditors may have direct business relationships with audit clients only "as a consumer in the normal course of business," the Journal reported, adding that the SEC doesn’t clearly define the phrase and as such, Ernst had argued that its relationship with People Soft qualified as an exception.
The SEC had no issue with the audits Ernst provided for PeopleSoft. Instead, the SEC said it "considers independence to be a keystone of our disclosure system," and that "any independence-impairing business relationship with an audit client is a serious violation."
In a lengthy opinion, Judge Brenda Murray rejected Ernst & Young's claims that the SEC’s rules were vague, saying there was "unrefuted evidence" that Ernst & Young had "blatant" and "improper" business dealings with PeopleSoft that caused it to lose its impartiality and objectivity, the Journal reported.
"The most outrageous were the joint marketing and joint sales activities that occurred across the board," the judge stated in the opinion.
Ernst & Young issued a statement on Monday, saying it is "fully committed" to working with an outside consultant to review its independence policies and procedures and will work closely with the SEC and the Public Company Accounting Oversight Board to ensure they are kept "fully informed" throughout the process.
"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 company stated.
Riiiight.. Ernst and Young saying the "rules" weren't very clear... lol
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