(The news featured below is a selection from the news covered in the Federal Securities Report Letter, which is distributed to subscribers of the Federal Securities Law Reports.)

Chief Accountant Addresses Auditor's Independence Sanction

SEC Chief Accountant Donald Nilcolaisen has written to Ernst & Young to outline the guiding principles that the firm should follow in complying with the SEC's order that the firm refrain from accepting new audit clients for six months. Chief Administrative Law Judge Brenda Murray issued an initial decision on April 16, 2004, finding that Ernst & Young had violated the auditor independence rules in connection with its business relationship with PeopleSoft Inc, which was also an audit client. The decision was made final by the SEC's order on April 26, 2004, the effective date of the six-month suspension order.

Mr. Nicolaisen explained in his letter that the staff has received inquiries from Ernst & Young and from registrants seeking further guidance with respect to the firm's suspension from accepting new audit clients, especially with regard to the timing. He said that the order is intended to discipline the firm, and not to punish registrants or pre-existing clients. The guiding principles are based on the premise that the firm's suspension should not unduly burden registrants from a financial or operational standpoint.