Ernst & Young was fined £500,000 and ordered to pay £2.4 million in costs today for failings in its role as auditor of Equitable Life.
The company and its client service partner Kevin McNamara were also reprimanded by the accountancy profession's Appeal Tribunal.
But the outcome is considerably better than the initial fine of £4.2 million and costs of £5.75 million that were imposed on Ernst & Young by the Accountants' Joint Disciplinary Tribunal (JDT), which the group appealed against.
The JDT had also severely reprimanded both E&Y and Mr McNamara.
But today's announcement will not help beleaguered policyholders in the society, who are currently waiting for compensation from the Government.
The sanctions relate to the Guaranteed Annuity Rate policies (GARs) offered by Equitable up to 1988, which were responsible for bringing the society to its knees.
The policies, which guaranteed to pay a pension at a fixed rate, were easy to fund when interest rates were higher than the guarantees, but they became expensive to offer when interest rates dropped below this level.
Equitable tried to get around the problem by reducing the discretionary bonus it paid on the policies, leading to a test case which Equitable lost in the House of Lords.
The society also failed to hold the reserves it needed to meet the guarantees.
Once the group lost the test case it put itself up for sale, and later closed to new business when no buyer could be found.
It also cut the final bonuses policyholders received to zero between January 1 2000 and July 31 2001, reduced the value of all policies by 16%, and imposed a 12% penalty on anyone who tried to move their investment away from the society before it matured.
The JDT found that E&Y and Mr McNamara should have warned policyholders about the consequences of losing the test case in 1998 and 1999.
It said they should also have highlighted that the company's 1999 financial statements did not show a true and fair view of the society because of the inadequate provision it had made.
With-profits policyholders invested £2.7 billion into Equitable in 1999, and paid in a further £2 billion up to December 8 2000, when the society closed to new business.
The Appeal Tribunal said these were enormous sums, adding that the potential for loss to policyholders as a result of the non-disclosure in the 1998 and 1999 statements was "significant".
However, the Appeal Tribunal did overturn the JDT's findings that E&Y and Mr McNamara acted with a lack of objectivity and independence.
E&Y said in a statement: "The allegations that we lacked objectivity and independence were acknowledged by all parties as 'by far the most serious' that we faced - the rejection of these findings by the Appeal Tribunal led to their decision to significantly reduce our fine, by more than 90%.
"All complaints against us for eight of the 11 audit years, from 1990 to 2000, were struck out by the JDT.
"We are nonetheless disappointed by the remaining adverse findings of the JDT in relation to aspects of the audit for the financial years 1997 to 1999."
The group added that it expended its sympathies to Equitable policyholders following events that "lay well outside of our control and the remit of our role as auditor".
An Equitable Life spokesman said: "We note this report on the past, but the board of Equitable Life is today focused on recreating value for our policyholders in the future.
"We are working with the new Government to establish a compensation scheme that is swift, simple, transparent and fair."
Equitable had taken legal action itself against E&Y in a bid to secure compensation for policyholders, but it later abandoned the claim.
Policyholders are currently waiting to hear how much compensation they will receive from the Government after the Parliamentary Ombudsman found 10 instances of maladministration by regulators and Whitehall officials in relation to Equitable in the period leading up to December 2001.Reuse content