E&Y Review Finds 'Potential' Independence Problems

Ernst & Young LLP has identified potential conflicts that may get in the way of the accounting firm's independence, a company spokesman said.

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The disclosures to regulators and some clients comes as part of a comprehensive review of the Big Four firm's independence policies and procedures, Ernst spokesman Charles Perkins told Dow Jones newswires.

The company was punished earlier this year for violating auditor independence rules, and observers say Ernst is erring on the side of caution.

The matters highlighted by the firm are minor compared with the consulting services that were business-as-usual prior to the enactment of Sarbanes-Oxley, accounting experts say. The firm has pointed to some issues that regulators or the companies themselves have already determined create no independence problems.

Clients said that Ernst listed investments made by the company's venture-capital unit and nonaudit work performed by Ernst affiliates that may be improper. In turn, Ernst dropped $15.5 million in investments in a software company. One person connected with Ernst & Young resigned from a client's board of directors.

The Securities and Exchange Commission ruled in April that the firm improperly entered into a joint venture with PeopleSoft Inc. while the firm was auditing the software maker. The SEC barred the firm from taking new U.S public company audit clients for six months and take other actions. The California Board of Accountancy also punished Ernst by putting the company on probation for three years.

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