The Public Company Accounting Oversight Board, the watchdog agency for the accounting industry, has fined big firm Ernst & Young $2 million for alleged lapses in three audits of a pharmaceutical company. The Board said the civil fine against the accounting firm was the largest it has levied since it began operating in 2003. At issue are audits of Medicis Pharmaceutical Corp. in 2005, 2006 and 2007.
The independent agency also censured Ernst & Young. Three current firm partners and one who has retired were also sanctioned by the Board. Censure generally brings the possibility that a firm or individual could face a stiffer sanction if the alleged violation is repeated. In the audits, Ernst & Young failed to properly evaluate a significant element, the amount Medicis set aside to account for the cost of product returns, according to the oversight board. Medicis, based in Scottsdale, Ariz., makes drugs for skin conditions such as acne and facial wrinkles.
Ernst & Young is one of the Big Four accounting firms that dominate the market, along with PricewaterhouseCoopers, KPMG and Deloitte. Ernst & Young has been Medicis’ outside auditor for more than 20 years. It was contended that the firm and the four partners “failed to fulfill their bedrock responsibility.” PCAOB Chairman James Doty said in a statement:
The auditor’s job is to exercise professional skepticism in evaluating a public company’s accounting and in conducting its audit, to ensure that investors receive reliable information – which did not happen in this case.
Congress created the PCAOB in a 2002 anti-fraud law responding to the wave of corporate scandals that began with Enron in late 2001. It has subpoena power and the authority to discipline accountants. PCAOB’s operations are funded by fees levied on public companies according to their size. In the latest settlements, the PCAOB barred Ernst & Young partner Jeffrey Anderson from all public-company accounting for at least two years and fined him $50,000. Robert Thibault, who retired from the firm, was barred for at least one year and fined $25,000. Two partners at the firm, Ronald Butler and Thomas Christie, were censured and Butler also was fined $25,000.
Source: Claims Journal
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