By Raman Jokhakar, Tarunkumar Singhal, Chartered Accountants
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23. Independence breach costs E&Y $ 2.9 million
Ernst & Young LLP agreed to pay more than $2.9 million to the
Securities and Exchange Commission to settle charges that it violated auditor
independence rules by co-producing a series of audio CDs with a man who was also
a director at three of E&Y’s audit clients.
According to the SEC, Ernst & Young collaborated with Mark C.
Thompson between 2002 and 2004 to produce a series of audio CDs called The Ernst
& Young Thought Leaders Series. The CDs featured E&Y partners interviewing CEOs
and CFOs in various different industry sectors, which the SEC says was part of
an effort by E&Y to promote its partners as experts in specific industries.
That relationship, said the SEC, violated independence rules
because Thompson was serving on the boards at several of E&Y’s clients during
the period when the CDs were produced. The SEC censured Ernst & Young and fined
the firm $ 2,918,987. It also censured partner John F. Ferraro for setting up
the relationship, and partner Michael G. Lutze for failing to alert one of his
audit clients — apparently Best Buy — after learning of the relationship. Lutze
was also suspended from practising before the commission for one year. The SEC
also issued a cease-and-desist order against Thompson. E&Y, Thompson, Ferraro,
and Lutze settled with the SEC without admitting or denying its findings in the
case.
Among the several reasons the SEC said the relationship did
violate independence rules was that fact that “unbeknownst to E&Y,” the
$ 377,500 that Thompson was paid for his work amounted to approximately half of
his net income at the time.
(Source : CFO.com US 7-8-2008)
