Farepak auditors face disciplinary tribunal

 

Farepak auditors Ernst & Young and one of its former partners are facing disciplinary action from the Financial Reporting Council (FRC). 

The FRC accused ICAEW members, EY and auditor Alan Flitcroft of misconduct and failing to meet expected auditing standards when auditing failed Christmas savings firm Farepak.

The company, which people made regular payments to in order to save up for Christmas gifts and hampers, entered administration in 2006 leaving no money available to creditors.

Around 120,000 savers were left with losses of £37m, which minister for consumer affairs in 2006 Ian McCartney called a "national emergency".

Following this, nine Farepak directors, including their finance director, faced disqualification but the High Court case collapsed.

The FRC made a disciplinary former complaint into EY and Flitcroft's conduct when auditing accounts ending 28 April 2005.

Continued...

» Register now

The full article is available to registered AccountingWEB members only. To read the rest of this article you’ll need to login or register.

Registration is FREE and allows you to view all content, ask questions, comment and much more.

Comments
davidwinch's picture

If you are wondering . . .    1 thanks

davidwinch | | Permalink

If you are wondering why I said European Home Retail lost perhaps £40m to £50m when they bought a business for £38m and sold it three years later for £4m, the reason is that after they purchased it they invested time and money in developing the business (or attempting to).  But their plans came to nothing and they sold it off cheaply - losing, in effect, the bulk of the purchase price and the money subsequently invested in it.

But that sale was in 2003 and the group finally collapsed in late 2006.

It is a moot point whether the Farepak customers would have behaved any differently whatever the auditors of the group had done - but that is not the issue which the FRC will be addressing.

Arguably the biggest single factor in the group's collapse was the decision in 2000 to purchase DMG for £38m (and the bank's decision to support that) - £33m of that purchase price was accounted for as 'goodwill' which had to be written off a few years later.

David

the market has been rigged for too long

david5541 | | Permalink

in capitalising most of the purchase price as goodwill in 2000  was corporate financier's/private equity investors favourite way of dumping debt into solid trading companies-it was happening everywhere....on the back of debt finance so led to the wind up of woolworths and now comet and soon four seasons healthcare.

 

now its the companies' staff and headcount that are paying the price not the private equity advisers.

 

Ernst and Young are the only big 4 member who have not been envolved in the autonomy stich up of hewlett packard.