E&Y faces formal complaint over Farepak audit

A FORMAL COMPLAINT has been laid against Ernst & Young into its conduct as auditors to European Home Retail and its subsidiaries, including Farepak Food & Gifts.

The FRC’s executive counsel filed the disciplinary following an investigation that included the conduct of E&Y and its former auditor Alan Flitcroft in relation to the audit of Farepak’s accounts for the period ending 28 April 2005.

An independent disciplinary tribunal will be appointed to hear the formal complaint.

The complaint alleges that the conduct of E&Y and Flitcroft “fell short of the standards reasonably to be expected of ICAEW members and member firms” in that they failed to comply with the requirements of applicable auditing standards.

According to the FRC, the effect of certain “post-balance sheet events” was not properly considered. Namely, material events that occur between the date up to which financial statements are prepared, and the date at which they are issued, which would prevent these statements from being misleading.

It is also alleged that E&Y and Flitcroft failed to properly obtain sufficient appropriate audit evidence on which to base the audit opinion, to consider Farepak’s ability to continue as a going concern and disclosures in the financial statements, to consider management representations as part of audit evidence, and to document important matters in their working papers.

“We obviously take these matters extremely seriously, but it would be inappropriate for us to comment further before the tribunal,” E&Y said in an emailed statement.

Christmas savings firm Farepak collapsed in 2006, leaving 114,000 people with total losses of £37m.

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