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EY punished over PeopleSoft dealings

Accounting firm Ernst & Young is barred from adding publicly traded firms to its client roster because of its dual relationship with PeopleSoft.

U.S. regulators have suspended Ernst & Young from accepting new auditing engagements with publicly traded companies for the next six months, after finding that the accounting firm violated auditor independence rules in its dealings with software maker PeopleSoft.

The decision was issued on Friday by Brenda Murray, the Securities and Exchange Commission's chief administrative judge.

The SEC, which initiated the case in 2002, found that Ernst & Young compromised its independence as an auditor for PeopleSoft by entering an agreement to jointly develop and market software and related services, while vouching for its financial statements from 1994 to 1999.

"Evidence shows that (Ernst & Young) has an utter disdain for the commission's rules and regulations on auditor independence," Murray wrote in a decision document.

Murray also ordered the auditing company to pay a fine of $1.7 million--equal to the fees Ernst & Young collected for auditing PeopleSoft over a six-year period, plus interest.

Ernst & Young said it would not seek an appeal and would work with an outside consultant to review its independence policies and procedures--another action the SEC demanded the company take. "Independence is the cornerstone of our practice and our obligation to the public," the company said in the statement.

The order doesn't prevent Ernst & Young, based in New York, from continuing to serve existing publicly traded audit clients, accepting new audit work from privately held companies, or accepting other work from public companies it does not audit, the company said.