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6-Month Bar Against Ernst & Young Begins

A six-month bar against Ernst & Young from accepting new corporate audit clients began Monday, the Securities and Exchange Commission said.

An administrative law judge at the SEC imposed the suspension on the nation's third-largest accounting firm on April 16 for compromising its independence by engaging in a lucrative business deal with a company whose books it audited.

The judge also ordered Ernst & Young to pay $1.7 million in restitution, plus interest. It was the first time the SEC had sought the suspension of a major accounting firm since 1975. Administrative law judge Brenda Murray said the evidence showed Ernst & Young “has an utter disdain'' for the SEC's regulations on auditors' independence.

New York-based Ernst & Young did not appeal the ruling, though it had previously argued that its conduct was appropriate and met professional standards. The company said it is “fully committed'' to working with the SEC-approved independent consultant it must hire under the judge's order to oversee its policies and internal controls.

SEC enforcement attorneys had been seeking since 2002 to have Ernst & Young temporarily barred from taking on any publicly traded companies as new audit clients, arguing that the firm violated rules designed to keep accountants independent from the companies they audit when it engaged in a business deal with software maker PeopleSoft Inc.

The issue of auditor independence was among those at the heart of the Enron scandal, which raised questions about Enron's longtime accountant, Arthur Andersen LLP, having done both auditing and consulting work for the energy trading company. Andersen was convicted in 2002 of obstruction of justice for destroying Enron audit documents.

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