US regulators have accused Ernst & Young auditors of not possessing adequate technical training and proficiency when they signed off on accounts for Irish e-learning group SmartForce.

The accounts for a period from 1999 to June 2002 had to be restated after the company merged with smaller US e-learning group Skillsoft. That led to class actions against the company which were later settled for about $30.5 million

In documents relating to the settlement of actions against the Big Four accounting firm, the US regulator, the Securities and Exchange Commission (SEC), said: "The respondents [ Ernst & Young's Irish business and partner David O'Hogan] reasonably should have known that SmartForce's financial statements had not been prepared in conformity with generally accepted accounting principles (GAAP).

"Ernst & Young nonetheless issued unqualified audit reports on SmartForce's annual financial statement," the commission stated. SmartForce was found to have overstated revenue by $113.6 million and net profit by $127 million.

In a statement last night, Ernst & Young welcomed the settlement, which saw it pay back the $725,000 it received for the audits related to what the SEC stated were "materially false and misleading" financial statements.

It said: "Ernst & Young conducts and supervises audits for and on behalf of SEC registered entities by ensuring that all of the policies and procedure updates, internal controls, staffing and training measures are in place to ensure audit quality."

However, the SEC said that, apart from Mr O'Hogan, the Ernst & Young accountants dealing with the SmartForce audit "had little or no training or experience" in assessing revenue for software firms. Even after they were assigned to the SmartForce account, the SEC alleged, they had received only "limited training on GAAP".

The commission has revoked the rights of Mr O'Hogan (57) to audit public companies in the US for the next two years.