ERNST & Young faces a possible disciplinary hearing after an investigation of its role as auditor to Anglo Irish Bank in the period when the institution made undisclosed loans to ex-chairman Seán FitzPatrick and other directors.
An investigation by former civil servant John Purcell into the firm’s performance as auditor has found that it has cases to answer in relation to the loans to Mr FitzPatrick and his colleague Willie McAteer, and deposits of €7 billion in Anglo by Irish Life and Permanent.
The Chartered Accountants’ Regulatory Board the supervisory arm of the Institute of Chartered Accountants in Ireland, engaged Mr Purcell to carry out the investigation in 2009. His findings mean Ernst Young could face a hearing before a three-person disciplinary panel of the institute, which will adjudicate on the cases.
If it is found to have breached regulations, Ernst & Young could be banned from describing itself as a chartered accountants’ firm for a specific period, barring it from audit work, while its partners could be fined €30,000 each.
However, criminal investigations into possible breaches of company law by former Anglo directors could delay any disciplinary hearing.
The Director of Public Prosecutions (DPP) recently asked the institute to hold off on disciplinary hearings into the conduct of Mr FitzPatrick and former Anglo chief executive David Drumm as it was feared that they could prejudice any prosecution.
It is not known if the DPP is likely to take similar action in this case. Neither Ernst Young nor any of its staff are implicated in any of the criminal investigations.
Mr Purcell found that the firm had failed to “detect the scale of Seán FitzPatrick’s loans and their systematic refinancing over year ends”. The loans totalled €120 million at one stage.
He said that Ernst & Young also had a case to answer for a possible failure to refer to the transactions in September 2008 between Irish Life & Permanent and Anglo in its audit report on the first set of Anglo’s 2008 financial statements.
Irish Life & Permanent temporarily deposited a total of €7 billion with Anglo in late 2008, helping to strengthen its balance sheet.
Anglo’s original 2008 accounts were never published and had to be revised after details of the undisclosed loans emerged. The questions faced by Ernst & Young relate only to the original accounts, not the published statements.
In May, the firm lost a High Court action seeking to halt the investigation into its performance as auditor to Anglo Irish Bank.
In a statement, Ernst & Young said it “fundamentally disagrees” with the opinions issued by John Purcell that there is a prima facie case to answer on three points under investigation.
“This 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,” the company said, adding that it would “vigorously defend” its work before a hearing of the disciplinary panel.
