The Big Four firm escaped severe criticism in the 818-page report published on Monday, as the government ruled out compensation to the one million investors who lost their savings.
But Lord Penrose maintained that it was not his place to judge E&Y’s competence. ‘Breach of professional duties is a matter for the professional bodies of which the relevant auditors were members at material times,’ he said in the report.
The spotlight will now turn to the Accountant’s Joint Disciplinary Scheme’s investigation into the competence of E&Y’s work. A result from that investigation is expected imminently. ‘We are continuing to cooperate with the JDS,’ said Ernst & Young in a statement.
The Big Four firm attempted to stay the JDS investigation in October 2002, by claiming it would prejudice its ongoing civil case with Equitable Life, which is due to reach the High Court in April 2005 and involves a claim of up to £2.5bn against the firm.
At the time, the High Court rejected the plea and added that the days when disciplinary tribunals were ‘fairly’ regarded as providing ‘second-class justice’ were in the past.
Despite this, leading legal experts said the Penrose report could be used by Ernst & Young as part of a defence of its audit work. Roland Foord, a professional negligence partner at Stephenson Harwood, said E&Y could make use of Penrose’s intense criticisms of regulators and standard setters.
‘There has been a comprehensive failure by industry and by standard-setting bodies over a long period of time,’ the Penrose report said, adding ‘without adequate accounting standards … audit has been inhibited from effective reporting … as a whole’.
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