The Public Company Accounting Oversight Board
(PCAOB) has fined Ernst & Young (E&Y) $2m over its alleged
wrongdoing in the 2005 to 2007 Medicis Pharmaceutical Corporation’s
financial statements.

The disciplinary order is the watchdog’s
largest monetary sanction it has set since it’s inception and
punishes E&Y for violating PCAOB rules, together with four of
its former and current audit partners.

PCAOB said during the audit periods in
question, it found E&Y and its partners failed to comply with
the oversight body’s standards in evaluating Medicis’s practice of
reserving for most of its estimated product returns at the cost of
replacing the product, instead of at gross sales price.

The board found a number of other violations
and stressed that the auditors failed to sufficiently audit key
assumptions placing undue reliance on management’s representation
that those assumptions were reasonable.

“These audit partners and E&Y – the
company’s (Medicis) outside auditor for more than 20 years – failed
to fulfil their bedrock responsibility,” PCAOB chairman James Doty

“The auditor’s job is to exercise professional
scepticism 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,” Doty added.

The Big Four firm settled the sanction without
admitting or denying the charges and said it cooperated fully with

“This settlement allows us to put this matter
behind us,” a spokesman from the Big Four firm said.

“We have implemented changes to our policies
and procedures that directly address the PCAOB’s concerns and will
enhance quality in the future. We take these issues very seriously
and remain highly confident in the quality of our audits,” E&Y

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