Annual General Meeting
(Reuters) - A judge suspended Big Four accounting firm Ernst & Young LLP on
Friday from accepting new, SEC-registered audit clients for six months in a
case involving software group PeopleSoft Inc.
Exchange Commission Chief Administrative Law Judge Brenda Murray also
ordered Ernst & Young (E&Y) to pay $1.7 million in disgorgement, to refrain
from future violations and to hire an outside consultant to review its
The $1.7 million
that E&Y will have to pay roughly equals the amount of audit fees it charged
PeopleSoft for fiscal years 1994 through 1999, Murray said.
The SEC in
mid-2002 accused E&Y - the No 3 US accounting firm - of violating auditor
independence rules by working too closely with PeopleSoft, an audit client,
on a software project.
The judge ruled
``that E&Y engaged in improper professional conduct because it violated
applicable professional standards for auditors by conduct that was both
reckless and negligent.''
found that a licensing agreement between E&Y and PeopleSoft related to the
project ``created a direct business relationship,'' and that it was
reasonable to argue that E&Y ``would not be objective in its audit of
misconduct was blatant... There is nothing in this record that shows that
E&Y is willing to accept the auditor independence rules applicable to
business relationships with audit clients,'' she said.
Decisions by SEC
administrative law judges may be appealed to the full five-member commission
and then to the courts. A spokesman for the commissioners declined to
gratified by the ALJ's decision,'' said Paul Berger, an associate director
of the SEC's enforcement division that brought the case.
In a statement,
E&Y said it is ``fully committed to working closely with an outside
consultant.''``While the order will prevent us from accepting new public
company audits for the next six months, it will not impair our ability to
continue to serve our existing public company audit clients, accept new
audit work from privately held companies, or to accept non-audit work from
public companies we do not audit,'' the firm said.
professor of accounting at the University of Georgia, said the suspension
was ``relatively mild'' because companies do not switch audit firms often.
``I doubt this
is going to be any kind of serious business issue for Ernst & Young, but I'm
sure it's not something they're happy about from a reputational
standpoint,'' he said. Ernst & Young is one of the world's four largest
accounting firms and its competitors include PricewaterhouseCoopers, KPMG
and Deloitte & Touche.
All are now
under the regulation of a new organization - the Public Company Accounting
Oversight Board - that was created in 2002 by Congress after a rash of
corporate financial scandals, including the Enron Corp. scandal that led to
the implosion of former Big Five accounting firm Andersen.
decision sends a clear message not only to E&Y, but to the other accounting
firms as well, that there is a significant cost to failing to put investors'
interests first,'' said Lynn Turner, former SEC chief accountant and now a
professor at Colorado State University.
Report of the New Building Society for the year ended December 31, 2003,
will be presented tomorrow at the Tower. The report says that "In the
interest of good governance and financial probity, the Board of Directors
requested that the Finance Minister appoint the Bank of Guyana to inspect
the financial records of the NBS and to undertake on site inspections. I am
pleased to report that the Bank of Guyana carried out an inspection of the
records of the NBS during the months of July and August in the year under
review. While we are yet to receive the final report on the inspection, we
have been advised that no major discrepancies were detected."
There are three
attorneys- at-law on the Board of the Society which also has two ex-ternal
legal advisers Cameron & Shepherd and McDoom & McDoom, the senior partner of
which is also a member of the board. Can any one of these be good enough to
tell us the source of the authority for the Minister to appoint the Bank of
Guyana to inspect the financial records of an unlicensed financial
institution? Can the Bank of Guyana tell the members of the Society and the
public at large why it accepted what is clearly an unlawful instruction from
the Minister of Finance? And why it has permitted NBS to flout the licensing
requirement of the Financial Institutions Act?
despite a mandate from the members at the April 23, 2002 meeting for a
thorough revision of the rules of the Society and half-hearted promises at
each succeeding annual general meeting since then, all the Chairman could
report is that a committee comprising the directors, senior management and
some of our members has concluded its work and its recommendations "will be
presented at a Special General Meeting of the members shortly." Surely an
entity that boasts of its good governance practices with a lawyer-dominated
board ought to treat a mandate from its members far more seriously.
And is it not
inconsistent to justify the unrestrained use of proxies because of members'
inability to attend meetings, while requiring members to collect the annual
reports from the Society's office? The Society may wish to note that it is a
principle of good corporate practice which is enshrined in the Companies Act
1991 that all relevant documents to be considered at the meeting be
delivered to or sent by prepaid post to the member.
Why does the
Society persist in speaking of competitors? There is no other financial
institution whose income is totally tax exempt, which is unlicensed under
the Financial Institutions Act, which has more than fifty (50) members but
is not registered under the Securities Industry Act, which does not have to
meet Central Bank Reserve requirements or which by virtue of its tax status
can win a disproportionate share of Government of Guyana Treasury Bills.
The Society once
again had a good year although what it erroneously refers to as profits fell
by 19% from $316M in 2002 to $255M in 2003. The Chairman described the
reduction as intentional, although he did draw attention to the falling
yield on Treasury Bills "to approximately 3.5% at the end of 2003," which he
described as "an all time low." In fact, the rate on Treasury Bills (at
December 31, 2003 of 3.40%) was higher than at any time during 2003.
average interest earned on mortgages fell by a mere three percentage points,
the interest paid on depositors' balances declined by 0.36 percentage
points. Unfettered by the provisioning requirements of the Financial
Institutions Act, the Society has a provision against loan losses of less
than half percent of its mortgage portfolio.
surplus for the past three years exceeding $3/4B, it means that existing
stakeholders, who cannot sell their interest are forfeiting their stake of
this magnitude. This policy on reserves, of which the board seems extremely
proud, is conceptually wrong, excessively prudent and indefensibly unfair to
Statement of Condition
financial position remains extremely strong with total assets of $24B, fast
approaching the Guyana Bank of Trade and Industry with $27.3B. The loan
portfolio which makes up 46.4% of total assets saw growth declining from
18.1% in 2002 to 11.1% in 2003. Investments comprising mainly Treasury Bills
make up 44.21 per cent, a growth rate of 21.98% (2002 - 9.70%).
decline in surplus, the Society's position is sound. The effective subsidy
it receives as a tax-exempt organisation allows it to play the lead role in
the country's housing drive with 4,984 accounts at December 31, 2003, up
from 4,506 in 2002.
This column believes that good governance is almost everything, and requires
more than lip service. While the Society is in much better shape than the
country, it needs to recognise that success can be easily reversed by poor
governance practices. The Society must now deliver on its obligation to move
into the 21st century.
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