Ernst & Young censured for lack of independence in audits
The Securities and Exchange Commission (SEC) censured Ernst & Young LLP for doing work that compromised its indepence with regard to American International Group (AIG) and PNC Financial Services Group. The work included helping AIG develop and market a financial product that was sold to PNC, who was an audit client of E&Y.
PNC improperly accounted for certain transactions, which led to a restatement of income by $155 million. The SEC claims that E&Y didn’t detect these accounting errors because the firm didn’t scrutinize transactions, relying instead on information from E&Y partners who worked on the AIG project./
E&Y will also pay $1.5 million dollars to settle these charges, but did not admit or deny the charges. This is the second time E&Y has been censured for lack of independence in audits. The first charge was in 2003, when E&Y was receiving money for recommending PeopleSoft software to clients, even though PeopleSoft was an auditing client of E&Y.
