Amid Emmys, Ernst & Young Battling Irish Bank Charges

Michelle Remo, “Big 4″ observer
September 18, 2011 /

Accounting and business consulting firm Ernst & Young has released its statement last week disagreeing “fundamentally” with the opinions by Special Investigator John Purcell who said there is a prima facie case that Ernst & Young needs to answer on three points under inquiry.

The accounting firm, whose executives arrived at the Emmys on September 18 bringing with them the winners envelopes in a silver briefcase, said this point in time is a “preliminary stage of the process and, for the avoidance of doubt, there has been no adverse finding made against Ernst & Young in respect of the audit of Anglo Irish Bank.”

“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,” Ernst & Young said.

In February 2009, the Complaints Committee of the Chartered Accountants Regulatory Board (CARB), the body established by the Institute of Chartered Accountants in Ireland (ICAI) to regulate its members, announced the appointment of John Purcell as Special Investigator into several matters involving Anglo Irish Bank. His task included investigating possible breaches of ICAI Bye-Laws and rules of professional conduct by its members/member firms, including Ernst & Young.

Although Ernst & Young admitted it would be “inappropriate” for the firm to comment on specific issues, it raised several points nonetheless.

“Many market participants, including the audit profession, are justifiably being scrutinised as policymakers take stock and learn lessons from the collapse of the Irish banking system,” Ernst & Young said.

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; in this case, the applicable accounting standards were International Financial Reporting Standards. These standards are internationally and independently agreed. They are endorsed by the European Union, and are mandatory for publicly quoted groups throughout the European Union.

“Ernst & Young’s role was to audit the annual financial statements prepared by Anglo Irish Bank, doing so under International Standards on Auditing,” Ernst & Young pointed out, saying it is set by the International Auditing and Assurance Standards Board.

“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,” the firm maintained.

There are ongoing criminal investigations by the Office of the Director of Corporate Enforcement (ODCE) and the Garda Síochána into how these transactions were dealt with by the Bank. Ernst & Young said it continues to provide testimony and documents to facilitate these ongoing investigations.

The ODCE has confirmed in the High Court, that it is investigating Anglo Irish Bank’s former management in relation to the “suspected withholding of information from auditors.”

The Nyberg report into the banking crisis in Ireland, commissioned by the Department of Finance, concluded that, as the role of a statutory audit is limited by law, auditors could not be expected to challenge the strategic decisions taken by Irish banks, which led to their failure.

It also concluded that many users of financial statements do not appreciate the limitations of a statutory audit and that more needs to be done by authorities in Ireland and internationally in order to address this so-called ‘expectations gap’.

Ernst & Young said it welcomes Purcell’s opinion that there is no basis for referral of the firm on key matters relating to his investigation of the so-called ‘Maple 10’ transactions or the loans made by the Bank to key management personnel and that that no prima facie case exists in respect of the audited financial statements actually issued.

 

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