Ernst & Young barred from new business

Ernst & Young LLP, the No. 3 accounting firm, on Friday was suspended for six months from accepting new clients because of an improper business relationship with business software maker PeopleSoft Inc.

SEC Chief Administrative Law Judge Brenda Murray also ordered Ernst to pay $1.7 million and to agree to a cease-and-desist order against future violations. Her 69-page decision appears on the U.S. Securities and Exchange Commission's .

The SEC in mid-2002 accused Ernst & Young of violating auditor independence rules by working too closely with PeopleSoft, an audit client, on a software project.

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Murray found that a licensing agreement between Ernst and PeopleSoft related to the project “created a direct business relationship” and that it was reasonable to argue that Ernst “would not be objective in its audit of PeopleSoft.”

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She ruled, “I find that (Ernst & Young) engaged in improper professional conduct because it violated applicable professional standards for auditors by conduct that was both reckless and negligent.”

Spokesmen for Ernst & Young, the No. 3 U.S. accounting firm, could not immediately be reached for comment.