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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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