Auditing

More Questions on E&Y Independence

SEC eyeing payments by Ernst & Young to a company affiliated with the former director of an audit client.
Stephen TaubJune 8, 2004

Executive search firm Korn/Ferry International announced in a regulatory filing that the Securities and Exchange Commission is conducting an informal inquiry into certain independence issues arising out of payments made by Ernst & Young, Korn/Ferry’s independent auditor, to a company affiliated with former director Mark C. Thompson.

Based upon publicly available documents, Korn/Ferry stated that it understands that in December 2002, the company affiliated with Thompson entered into a contract with Ernst & Young, and that from December 2002 to April 2004, E&Y paid that company $377,500 plus reimbursement of expenses.

Korn/Ferry added that after an internal E&Y review of its payments to the company affiliated with Thompson, the audit firm delivered a written confirmation of its independence to Korn/Ferry’s audit committee. Based on this written confirmation from E&Y, and based upon the search firm’s current knowledge of the facts and circumstances, it believes that “E&Y’s independence was not impaired as a result of its payments to the company” affiliated with Thompson.

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According to Korn/Ferry, Thompson did not stand for re-election as a director at the company’s annual meeting last September, and he ceased to be a director as of September 10, 2003.

As you probably recall, in April, a chief administrative law judge with the SEC ruled that Ernst & Young cannot accept new audit clients in the United States for six months because it violated SEC rules on auditor independence.