Ernst & Young must face a disciplinary panel over its audit at Anglo
ERNST & Young, one of the country's largest accountancy firms, is to be called to account in a public hearing about its work at Anglo Irish Bank and a failure to detect controversial transactions, including Sean FitzPatrick's directors' loans.
For the first time in the financial crisis, an audit firm will have to face the disciplinary panel of the Chartered Accountants Regulatory Board. Unless a specific application is made, the disciplinary hearing will sit in public.
Ernst & Young reacted angrily to the findings that there is prima facie against the firm in relation to three events at Anglo.
The firm said it was important to emphasise there was no adverse finding against it, and the conclusions -- reached by John Purcell -- were preliminary in nature.
Mr Purcell, the former Comptroller & Auditor General, said there were prima facie cases against Ernst & Young in respect of their role as auditors to Anglo Irish Bank in relation to the following:
- The firm's failure to detect the scale of Mr FitzPatrick's loans and their systematic refinancing at year end.
- The firm's failure to refer to the transactions in September 2008 between Irish Life & Permanent and Anglo in its audit report on the first set of Anglo's 2008 financial statements.
- Its failure to ensure appropriate disclosure of a loan made to Willie McAteer, a director of Anglo, in the first set of Anglo's 2008 financial statements or in its audit report.
Other issues relating to items such as the so-called Maple 10 loans involving a stake in Anglo owned by Sean Quinn were dropped against the firm. Mr Purcell is working for the board as a special investigator.
Mr Purcell is used as a special investigator by the chartered accountants, but his report on Ernst & Young will not be published.
The exact format for any disciplinary hearing has not been decided yet and who exactly will appear from Ernst & Young is not known. It is also possible the Director of Public Prosecutions will ask for the whole process to be postponed.
"We will vigorously defend our work before a hearing of the Chartered Accountants Regulatory Board's disciplinary panel, which will consider whether or not any such criticism is justified,'' said Ernst & Young.
The firm, in an unusually frank statement, seemed to show frustration that its conduct was being questioned, rather than Anglo directors.
"Under Irish law, it was the responsibility of Anglo Irish Bank and its then directors to ensure that financial statements were prepared in accordance with the relevant legal and accounting standards," it said.
"Ernst & Young was not the instigator of any of the matters highlighted in Mr Purcell's opinions, nor did we encourage or advocate these transactions in any way," it added.