Ernst & Young drops gagging order on critical Equitable Life report
Ernst & Young, the "Big Four" accounting firm, faces a devastating blow to its reputation after failing to block the publication of a damning report into its audit of the stricken insurer Equitable Life.
For the past six months, the group has gagged the Joint Disciplinary Scheme (JDS), the profession's watchdog, by preventing any mention of the report. Over the weekend, however, it dropped the injunction following a High Court hearing.
The JDS has now sent the report to Equitable's regulator, the Financial Services Authority (FSA), and the Institute of Chartered Accountants in Scotland, to whom E&Y is accountable.
E&Y is appealing "certain aspects" of the report, which is expected to order the firm to pay a multi-million pound fine and criticise severely both E&Y and the partners involved in the Equitable audit. The appeal will be heard in October, and the JDS hopes to publish the document by the end of the year. The JDS first began its investigation into E&Y, Paul McNamara, the client service partner on the Equitable account, and Richard Combes, the audit partner, in 2002. In referring the case to the tribunal, Chris Dickson, the JDS executive counsel, alleged the auditors had failed by signing off misleading accounts for every year between 1990 and 2000.
In his earlier notice, Mr Dickson cited "their failure to understand [Equitable's] business [and] their failure to act with objectivity and independence". The final report, which is expected to expand on those criticisms, was ready to be sent to the FSA on December 23 2008, but was not seen by any external party until yesterday due High Court order.
E&Y said: "We cannot comment on the provisional findings other than to confirm that we have appealed certain aspects. After taking legal advice in December, we sought to keep confidential these provisional findings. We have now agreed, through the court, a way forward."
Equitable was forced to close to new business in December 2000 after it lost a crucial House of Lords case over its policy of cutting pay-outs to customers with annuities which guaranteed a fixed annual return. The judgment landed Equitable with a crippling £1.5bn bill, which drove it to the brink of insolvency. The board subsequently took E&Y and the former Equitable directors to court, suing the accounting firm for £2bn. The case against E&Y was dropped in September 2005, just months after it was launched, and Equitable paid a portion of the group's costs.
The case against Mr Combes has been withdrawn due to his ill health.
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