California Accounting Body Penalizes E&Y

Action stems from SEC's charge that Ernst & Young violated auditor-independence rules by doing both consulting and audit work for PeopleSoft.
Stephen TaubSeptember 27, 2004

Ernst & Young is still paying a price for violating the Securities and Exchange Commission’s auditor independence rules. The time the regulators are a number of state accountancy boards.

In April, a judge banned the firm from accepting new clients for six months because its violations of SEC rules. The move stemmed from E&Y’s audits of PeopleSoft, Inc. for the fiscal years 1994 to 1999. According to the commission, the accounting firm marketed consulting and tax services while it was performing the audits for the software maker.

Now, some states are levying their own punishment against the accounting giant. Last week, for example, E&Y settled with the California Board of Accountancy.

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Under the arrangement, in which E&Y agreed to three years of probation and payment of a $100,000 penalty, the firm must hire an independent auditor to ensure that the accounting firm is complying with the SEC’s sanctions. It also must hire an outside consultant to assess a sample of the firm’s audits in California, according to accounts of the pact.

Under the 12-page settlement, the consultant must conduct a practice investigation and supply a report on E&Y’s independence policies and procedures. The consultant must work with the firm to make sure that the firm’s leadership “is committed to, and has implemented policies and procedures that reasonably can be expected to remedy the violations found and result in compliance with the SEC’s rules on auditor independence.”

Also last week, the New Mexico Accountancy Board voted 4-0 to issue so-called notices of contemplated actions against E&Y stemming from the same matter.

The board wants to know why the firm put itself in a conflict of interest concerning its national and international dealings with PeopleSoft and ensure that the firm is not continuing similar practices now, said board chairman Bruce Malott, according to the Albuquerque Journal.

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