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June 3, 2010

E&Y Equitable Life penalties cut

Ernst & Young (E&Y) UK’s penalties for
its role auditing the Equitable Life Assurance Society (ELAS) have
been cut following an appeal.

The Accountants’ Joint Disciplinary Tribunal
(JDT) fined E&Y £4.2m ($5.97m) and ordered it to pay costs of
£5.75m in 2008 for failing to alert Equitable policyholders to the
society’s financial troubles.

E&Y and former client service partner
Kevin McNamara were also severely reprimanded and the JDT ruled
that they acted with a lack of objectivity and independence.

E&Y took the case to the JDT Appeal
Tribunal, which ruled the firm had not acted with a lack of
objectivity and independence.

The tribunal cut E&Y’s fine to £500,000
and its costs to £2.4m.

The tribunal also downgraded the severity of the reprimands to
both E&Y and McNamara.

E&Y welcomed the tribunal’s findings,
noting that all complaints against it for eight of the 10 years it
audited Equitable were struck out.

The firm said it is disappointed by the
remaining adverse findings, which related to aspects of the audits
for the 1997-1999 financial years.

“In terms of the remaining adverse findings of
the JDT: these were matters of complex professional judgment in a
difficult and novel area in which there was no direct technical or
professional guidance at the time,” the firm said in a
statement.

“It is therefore frustrating that the JDT did
not agree that our judgements were reasonable, particularly given
that the level of provision in the society’s accounts for 1999 has
since been supported by others, including [PricewaterhouseCoopers],
the new auditors of Equitable and by KPMG our expert witness in the
tribunal process.

The JDS began investigating the Equitable case
in 2004 when complaints were filed about E&Y’s conduct over its
Equitable audits. In 2000, Equitable became insolvent after
suffering a £1.5 billion fine.

 

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