Ernst & Young fined £500,000

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Ernst & Young has been fined half a million pounds and ordered to pay £2.4m in costs by the Accountant's Joint Disciplinary Scheme (JDS) and Appeal Tribunal following an investigation into its audit of Equitable Life.

Both former Ernst & Young partner Kevin Paul McNamara and the firm were reprimanded by the Appeal Tribunal.

The decision is the result of a six-year investigation into the auditors' possible negligence in the near-bankruptcy of the life insurance company Equitable Life, which was only saved by a cut in the pensions and retirement savings of its policyholders in 2000.

Ernst & Young was accused of failing to qualify accounts between 1997 and 1999, which did not include adequate provisions to cover outstanding Guaranteed Annuity Rate (GAR) policies. The i...

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04th Jun 2010 12:09

E and Y fine

They have to be happy with the fine, though the costs are the hard thing to bear

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04th Jun 2010 13:38

E&Y Fine

They will be ok, they will have provided for the fine and costs.  Wouldn't they?

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By Anonymous
04th Jun 2010 17:33

Fine only chicken feed

in relation to the losses suffered by Equitable policyholders

Simple remedy - why not forget the fine and make them liable to compensate the policyholders?

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07th Jun 2010 10:47

PR aftermath

The JDS’s Equitable Life decision and report have been the subject of considerable spin during the past few days. On Friday, the firm’s statement (quoted above) welcomed the judgment of the scheme’s Appeal Tribunal “overturning all findings relating to objectivity and independence for our work on the audits of the Equitable Life Assurance Society”.

The story behind this is that E&Y appealed against a much more severe judgment from the JDS in late 2008. While the appeal was being heard, the firm obtained a “super injunction” preventing news of the appeal or the contents of the original JDS report from being reported, or even disclosed to other regulators.

The Guardian reported that the initial JDS investigation found E&Y and McNamara guilty of more than 20 instances of a “lack of professional competence” in the audit of Equitable's accounts for 1997, 1998 and 1999 as well as determining there had been "a lack of objectivity and independence". The initial penalties were set at a fine of £4.2m with £5.75m costs.

Following the appeal, E&Y pointed out having overturned the findings of a lack of lacked objectivity and independence and complaints on all but three of the years under review contributed to a significantly reduced fine.But the firm’s stance did not cut much ice with Observer/Guardian City editor Ruth Sutherland who commented, “Nowhere in the statement is there an apology for the failings the disciplinary body did hold E&Y responsible for. Far from expressing contrition, the company said it was disappointed that some adverse findings about its reports between 1997 and 1999 were upheld.”

She also pointed out that while E&Y “got off lightly over Equitable”, it remains in deep trouble for its audit of Lehman Brothers. “The audit profession has so far escaped sustained scrutiny in the aftermath of the credit crunch. It's about time that changed,” she wrote.

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