E&Y Warns of Independence Conflict

Certain non-audit services that Ernst & Young performed in China for a large number of public companies have raised questions regarding the firm's ...
Stephen TaubOctober 21, 2004

Marriott International announced in a regulatory filing that its outside auditor, Ernst & Young LLP, warned the company about a possible violation of auditor independence rules.

The hotel giant said E&Y recently notified the Securities and Exchange Commission, the Public Company Accounting Oversight Board, and the company’s audit committee that certain non-audit services Ernst & Young performed in China for a large number of public companies, including Marriott, have raised questions regarding the firm’s independence in its performance of audit services.

Ernst & Young performed tax-calculation and tax-preparation services for between four and eight Marriott employees located in Beijing from 2001 to May 2004, and affiliates of the audit firm paid the relevant taxes on behalf of Marriott, according to the filing. Those tax payments involved handling company-related funds, which is not permitted under SEC auditor independence rules, Marriott pointed out.

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The company stressed that those activities have been discontinued and that both the amount of the taxes and the fees paid to E&Y in connection with these services are “de minimis.” Marriott added that Ernst & Young informed its audit committee that the firm does not believe that the holding and paying of those funds impaired its independence regarding the company.