Ernst & Young fails to halt inquiry into its conduct as Anglo Irish auditor

ACCOUNTANCY FIRM Ernst Young has lost its High Court bid to halt the investigation into its conduct as auditor to Anglo Irish Bank when dealing with alleged inappropriate loans to directors of the bank.

Ms Justice Mary Irvine ruled yesterday the firm was out of time and had shown no arguable grounds entitling it to bring proceedings to “effectively torpedo and thus fatally terminate” the two-year investigation by special investigator John Purcell, appointed by the Institute of Chartered Accountants (ICAI) regulatory body (Carb) in early 2009.

She also ruled the firm had advanced no arguable case for proceedings to prevent a report by forensic accountants FTI into the conduct of Ernst & Young as auditor to Anglo being forwarded to Carb in the event of a finding by Mr Purcell of a prima facie case that Ernst & Young is liable to disciplinary action.

Among various claims in its application for leave for judicial review, the firm alleged the investigation to date had been unfair because reports leading to Mr Purcell’s appointment did not contain valid “complaints”, as they failed to set out specific allegations, including of misconduct, or to refer to codes of conduct, rules, regulations and professional standards.

If a “complaint” had to be set out as required by Ernst & Young, the vast majority of complaints, even if wholly meritorious on their facts, could never be investigated, the judge said.

Mr Purcell, she noted, was appointed by the complaints committee of Carb on foot of various matters in media reports, including a claim by an accountancy expert that Ernst & Young should have spotted that former Anglo chairman Seán FitzPatrick had engaged in a process of temporarily concealing directors’ loans by transferring them to another bank prior to Anglo’s year-end.

The bylaws under which Mr Purcell was appointed render members of the ICAI liable to disciplinary action in a wide range of circumstances and the definition of “complaint” was drafted in wide and clear terms to include any behaviour that may be suspect, the judge said.

Any act or default likely to discredit a member of the institute, the institute itself or the accountancy profession, or the inefficient or incompetent performance of accountancy duties, left that member open to disciplinary action.

The firm had also made out no arguable case of breach of natural justice or fair procedures in the investigation to date, she ruled.

The investigation was at “a preliminary phase” and the firm’s rights at this stage were limited, she said. It was entitled only to be notified of the complaint and given an opportunity to respond to it. It was not entitled under the bylaws to an advance copy of Mr Purcell’s proposed findings so it could make submissions on those.

The firm had had details of the issues under investigation for some two years and the procedures adopted by Mr Purcell had afforded the firm rights significantly beyond those to which it was entitled under the relevant bylaws, she noted.

If, after receipt of Mr Purcell’s report, the matter proceeds via formal complaint to a disciplinary tribunal, the bylaws provide “very significant” rights to enable Ernst & Young safeguard its interests, she added. In those circumstances, the firm would get Mr Purcell’s full report and all documents being relied upon and would be entitled to call and cross-examine witnesses and make submissions.

At all stages, Ernst & Young was advised by Mr Purcell it would get a synopsis or summary of his investigation plus relevant material so it could make, within 28 days, written submissions to him on that, she said.

After considering those submissions, Mr Purcell will present his report to the complaints committee of Carb, including his opinion whether there is a prima facie case that Ernst Young is liable to disciplinary action. If he concludes there is such a prima facie case, he must stipulate the evidence on which his opinion is based. The committee will then decide what, if any, action should be taken on foot of the investigator’s report.

The synopsis was presented on February 9th last and the failure of Mr Purcell to yield to the “wide-ranging demands” made by Ernst & Young through its solicitors on March 11th led to these legal proceedings, the judge noted.

Earlier, the judge found the application for leave to bring judicial review proceedings, made last month, was made well outside the six-month maximum time limit for judicial review as the appointment of Mr Purcell was in February 2009. The firm had failed to provide any cogent or meritorious explanation for its delay and its application for the court to extend time was “wholly without merit”, she also ruled.

Under the instruments of appointment of Mr Purcell, reference was made to press releases about the resignation of Anglo board members (Sean FitzPatrick, David Drumm and William McAteer) and to loans of Mr FitzPatrick that were current when Ernst & Young was auditor to the bank.

Ernst & Young Statement

ERNST & Young is disappointed by today's High Court decision to deny leave for a judicial review of the investigation process being followed by the Chartered Accountants Regulatory Board (Carb), in connection with the statutory audit of Anglo Irish Bank.

As we have a genuine concern over the process being followed by Carb, Ernst & Young believes it was right to seek leave for this judicial review.

We have no issue with active, constructive and comprehensive participation in any investigation of our work as statutory auditors to Anglo Irish Bank.

As was acknowledged by the Court we have co-operated fully with Carb's investigation to date and support its desire to maintain high standards within the accountancy profession. We will now take time to review the terms of this judgment and as such it would be inappropriate to make any further comment at this time.