Ernst & Young Disciplined by California Accountancy Board

The California Board of Accountancy has taken disciplinary action against Big Four firm Ernst & Young LLP because of independence questions that arose from the firm's dealings with PeopleSoft Inc.

In the late 1990s, Ernst & Young served as the software giant's audit at the same time as its consulting arm was involved in a joint venture with the firm. The Securities and Exchange Commission sanctioned Ernst & Young in April citing independence issues, Dow Jones Newswires reported.


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The California board announced Tuesday that Ernst & Young would be placed on three year's probation and must hire an independent consultant to review a sampling of its California audits, the Sacramento Business Journal reported.

The independent consultant/auditor will be asked to conduct a practice investigation to determine whether 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," the Business Journal reported.

The SEC found that during fiscal years 1994 to 1999, Ernst & Young was auditing PeopleSoft's financial statements while it was also involved in the joint sales and marketing ventures, the Business Journal reported. Ernst & Young has since divested itself of its consulting arm.

In a related event, the New Mexico board voted 4-0 to issue notice that it "contemplated action" against E&Y for its PeopleSoft audits.

Read a copy of the accusation at: www.dca.ca.gov/cba/discipline/ey_accus.pdf

Read the settlement action at: www.dca.ca.gov/cba/discipline/ey_settl.pdf

Read E&Y's letter to the California board: www.dca.ca.gov/cba/discipline/ey_ltr.pdf

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