SEC Fines EY, More Auditor Independence Cases to Come | AccountingWEB

SEC Fines EY, More Auditor Independence Cases to Come

The U.S. Securities and Exchange Commission (SEC) fined an overseas office of Ernst & Young (EY) $400,000 for lack of independence in the audits of Baan Company, N.V., a business software company headquartered in the Netherlands. An SEC official indicated that other auditor independence cases might soon follow.

The SEC charges that joint business relationships between Baan and EY's overseas office resulted in an impairment of auditor independence. The relationships were established to help EY consultants implement Baan's software products for third parties. They included a project subsidized by the Dutch government for the joint development of faster software implementation tools, as well as joint marketing activities emphasizing the "partnership" between Baan and EY, and Baan's use of EY consultants as subcontractors and temporary employees in servicing Baan's clients.

In some ways, the Baan case is similar to the independence violations alleged in the PeopleSoft case, which EY is contesting. Examples:

  • Both cases reach back a number of years. The Baan case involves audits of 1995, 1996, and 1997 financial statements. Since then, EY resigned as Baan's auditor in 1998, Baan was acquired by Invensys Plc in 2000, and EY's U.K. affiliate is now Invensys's auditor.

  • Commissioner Isaac Hunt was the only SEC commissioner to vote on both matters. Chairman Harvey Pitt and Commissioner Cynthia Glassman both recused themselves because they have past ties to Ernst & Young.

SEC Associate Enforcement Director Paul R. Berger told Bloomberg, "There may well be audit-independence cases coming down soon, including some involving the Big Four accounting firms." The Commission has already filed auditor independence charges against KPMG and PricewaterhouseCoopers. But neither of these firms was fined. The EY case is the first time an accounting firm was fined for an independence violation.

-Rosemary Schlank

Wait, there's more!
There's always more at AccountingWEB. We're an active community of financial professionals and journalists who strive to bring you valuable content every day. If you'd like, let us know your interests and we'll send you a few articles every week either in taxation, practice excellence, or just our most popular stories from that week. It's free to sign up and to be a part of our community.
Premium content is currently locked

Editor's Choice

WHAT KIND OF FIRM ARE YOU?
As part of our continued effort to provide valuable resources and insight to our subscribers, we're conducting this brief survey to learn more about your personal experiences in the accounting profession. We will be giving away five $50 Amazon gift cards, and a $250 Amazon gift card to one lucky participant.
This is strictly for internal use and data will not be sold
or shared with any third parties.