Consumer Groups Charge E&Y With Undermining Sarbanes-Oxley

Five consumer groups have contacted Securities and Exchange Commission Chairman William Donaldson with a complaint that Big Four firm Ernst & Young is undermining Sarbanes-Oxley legislation by advising companies that there is a way around the rules designed to promote auditor independence.

Consumer Action, the Consumer Federation of America, Consumers Union, Common Cause, and the national Public Interest Research Group have all signed a letter to Chairman Donaldson asking that the SEC investigate the possibility that corporate boards can give blanket pre-approval of non-audit services by the company's auditors instead of requiring audit committees to pre-approve such services as called for by Sarbanes-Oxley.

The group of public interest organizations claim that E&Y is encouraging companies to use their right to pre-approve non-audit services as a matter of corporate policy, according to rules allowed by the SEC. E&Y has not commented on the matter, however material published on the accounting firm's Web site makes reference to E&Y having worked with a team of securities lawyers to develop a model pre-approval policy for audit committees.

The consumer groups suggest that the SEC should "step in quickly and forcefully," to prevent accounting firms from making "a mockery of Congress's intent" with regard to Sarbanes-Oxley auditor independence legislation. The SEC has not commented on the matter.

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