Equitable problem a disclosure issue only, says PwC

The guaranteed annuity rate problem in Equitable Life’s accounts, for which
the mutual is suing former auditors Ernst & Young for £700m, was a
disclosure issue and nothing else, said PwC.

Key PwC partners are currently being cross-examined as part of the case, as
expert witnesses for Equitable. David Law and David Parmee have alleged in
witness testimony that E&Y should have qualified accounts that included
insufficient provisions for the liabilities.

At the same time as they were making those accusations, however, PwC’s audit
practice, which took over the Equitable audit in 2001, was taking a relaxed view
of provisions in Equitable’s accounts, it emerged in court today.

In an email, Gordon Ireland, a PwC audit partner, wrote to key officials at
Equitable Life: ‘In conclusion, taking the evidence of Chris Headdon’s letter to
FRRP the failure in the accounts was one of a lack of disclosure rather than
erroneous accounting.

‘In the circumstances and taking into account the views of Peter Nowell I
accept that it is not necessary to adjust the opening balance sheet in the
interim accounts.’

PwC had been asked to rule on the provisions as it had to sign off accounts
that included figures from previous years. E&Y is saying that its Big Four
rival has been hypocritical in its attitude to Equitable.

It also emerged today that PwC had erected Chinese walls in relation to the
case, between its auditors and the expert witnesses.

‘The reason why there was a Chinese wall is because it was clear within PwC
that PwC was doing two different things which are inconsistent and receiving a
large fee for both,’ said Jonathan Gaisman QC, for E&Y.

Related reading