Judge Dismisses Independence Case Against EY | AccountingWEB

Judge Dismisses Independence Case Against EY

Ernst & Young (EY) has won its appeal of the auditor-independence case brought against it by the Securities and Exchange Commission (SEC) in connection with past audits of PeopleSoft.

In a ruling that could affect other cases in the pipeline, an administrative-law judge said that SEC's one-member vote violated federal rules. At the time of the vote, the five-member board had only three commissioners, including Commissioner Isaac Hunt who cast the sole vote for the charges. Both Chairman Harvey Pitt and Commissioner Cynthia Glassman recused themselves from the vote because of their past ties to the Big Four accounting firm. Prior to her appointment to the SEC, Commissioner Glassman was an economist for EY, and Chairman Pitt represented the firm as an attorney in private practice.

Granted, a dismissal of charges is not the same as an acquittal. The PeopleSoft case was dismissed "without prejudice," meaning the SEC can file it again later. But the Commission may not be in a position to do so for some time to come.

Currently, the SEC still has only three commissioners, including Commissioner Hunt, who is serving a temporary term until another Democratic nominee is approved. The replacements for the vacant or soon-to-vacant seats on the Commission are awaiting hearings by the Senate Banking Committee. The nominees include Harvey Goldschmid, who was nominated in May, Roel Campos, a Houston communications executive whose nomination has not yet been cleared pending the results of an FBI background check, and Paul Atkins, a partner at PricewaterhouseCoopers.

Other cases that might be affected include recent allegations of auditor independence violations against Ernst & Young's Dutch affiliate in connection with audits of another software company, Baan Company, N.V. This case could be dismissed too. Ernst & Young spokesman Les Zuke said. "We are pleased the administrative-law judge agreed with our position that the proceeding was not properly authorized and dismissed the complaint." An SEC spokesperson said the Commission had no comment at this time.

-Rosemary Schlank

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