ACCOUNTANCY firm Ernst and Young (E&Y) is being sued by a market trading company specialising in spread betting for alleged negligence over its auditing services.
WorldSpreads Ltd (WSL) claims it could not continue to trade after a shortfall was allowed to grow over a number of years in its client account balances, which may exceed £22m (€26m).
It was unable to comply with UK Financial Service Authority (FSA) regulations and led to its board putting the company into special administration in March last year.
It claims E&Y was negligent in the performance of its services and obligations to WSL in connection with audits carried out between 2007 and 2011.
The case was transferred to the Commercial Court today by Mr Justice Peter Kelly on consent between the parties.
WSL is registered in the UK and a wholly-owned subsidiary of WorldSpreads Plc, which is registered in Ireland. It was an online financial markets trading business whose principal activity was the provision of spread betting services, including on foreign exchange, futures and options.
E&Y, Harcourt Centre in Dublin, acted as its auditors since 2007 and was engaged to carry out audit's under the FSA's supervision rules, it is claimed.
In 2008 and 2009, as a result of reports into WSL's activities by the FSA, a number of issues of concern about the transaction reporting of WSL were raised.
WSL says E&Y issued unmodified opinions on its financial statement audits from March 2007 which although they provided a list of breaches of the regulations, they also stated WSL maintained systems to comply with the relevant FSA "client asset sourcebook" rules.
However, in march 2012, as a result of certain disclosures by WSL's finance controller, the company became aware there was a substantial shortfall int he amount of client money which ought to have been held in a segregated and the amount which was actually held. WSL says the shortfall to clients may exceed £22m,
WSL says E&Y failed to consider the concerns of the FSA and failed to identify that financial statements and/or reports received from it (WSL) had been manipulated.
It also says E&Y failed to give an appropriate opinion on the financial statements and failed to ensure appropriate accounting policies were adopted by WSL.
It is also claimed E&Y failed to recognise that circumstances existed that caused financial statements to be materially mis-stated and failed to report promptly to the FSA in the light of the "multiplicity of breaches" identified in 2007.
WSL claims if E&Y had identified the shortfalls in 2007 and reported them, the board could have either ceased trading immediately or taken steps to rectify the problems.