E&Y faces charges over auditor independence

The SEC yesterday ordered a hearing in 60 days – including the possibilities of sanctions against the firm – over claims E&Y violated auditor independence rules, by engaging in business with its audit client.

The watchdog alleges that from 1993 to 2000 E&Y developed and marketed a product jointly with the software company, while auditing its books.

The product called EY/GEMS was allegedly marketed by E&Y’s tax department and contained PeopleSoft proprietary source code

But the firm said it was ‘surprised and disappointed’ by the allegations, adding: ‘Our conduct was entirely appropriate and permissible under the profession’s rules.’

The debate over auditor independence reached its zenith under former SEC chairman Arthur Levitt who campaigned hard for a ban on consulting services offered by firms to their audit clients.

But it has reared its head again following revelations that Andersen provided both auditing and consulting services to the collapsed energy giant.

Yesterday the European Commission issued new guidelines recommending auditors should not offer other services to their audit client as it could jeopardise independence.

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