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by Mike Caswell
Ernst & Young LLP has agreed to pay an $8-million penalty to settle allegations from the Ontario Securities Commission that it failed to exercise professional skepticism with two Chinese companies. The sanction stems from audits of failed forester Sino-Forest Corp. and now-defunct shoemaker Zungui Haixi Corp. The OSC said that Ernst & Young did not detect problems with $2.5-billion (U.S.) worth of trees that Sino-Forest supposedly owned. It also did not properly consider the risk of Zungui using fictitious distributors for its products, according to the OSC.
Details of the settlement are contained in an agreement that the OSC released Tuesday morning, after a hearing panel accepted the deal. Without admitting any wrongdoing, Ernst has agreed to pay $6.5-million for problems with the Sino-Forest audit and $1.5-million for the Zungui Haixi allegations. The firm has also agreed to co-operate in a separate hearing that the OSC is pursuing in the affairs of Sino-Forest.
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