Judge Brenda Murray, an administrative law judge, said E&Y’s US business should be suspended from taking on new listed audit clients for six months.
She also ordered E&Y to pay almost $1.7m, and to “cease and desist” from violations of auditor independence rules.
E&Y, led by James Turley, global chairman, has decided not to appeal against the judge’s order which had been sought by the Securities and Exchange Commission. E&Y hopes to limit the damage to its reputation by complying in full with the order rather than embarking on further litigation.
E&Y denied breaching SEC auditor independence rules in its relationship with PeopleSoft, the US software company.
People close to E&Y said its US business had been hopeful the judge would accept its arguments and dismiss the case or at worst impose a limited fine. “This judgment came as a surprise,” said one E&Y partner. “We were at worst expecting a rap on the knuckles.”
E&Y audited PeopleSoft’s financial statements between 1994 and 1999. In 1995, E&Y entered into a partnership with PeopleSoft to install its software at companies. E&Y was paid almost $1.7m for auditing PeopleSoft’s financial statements. But E&Y’s consulting arm earned a further $425m from implementing PeopleSoft’s software at companies.
However, E&Y sold the consulting arm in 2000. Regulators launched efforts to bolster auditor independence in 2000, and further reforms were delivered by the 2002 Sarbanes Oxley legislation.