E&Y's stylish victory proves auditors are hard to beat

First KPMG survived a threat of implosion in the wake of allegations it
helped wealthy US customers evade billions in taxes in the late nineties through
creative tax shelters.

And last week Ernst & Young saw off – with some style – the claim by
Equitable Life that it was culpable for the life assurer’s financial crisis.

All this will give the DTI and the Professional Oversight Board for
Accountancy plenty to think about as they work on a report into competition in
the audit market. That report – expected in the new year – will take on a
different hue once the events of recent weeks are taken into account.

But while the crises at KPMG and E&Y are likely to be talked of in a
similar vein, there are profound differences. KPMG itself may have seen off a
life-threatening claim, but the US Department of Justice has indicted eight
former partners of the firm on grounds of conspiracy to defraud the federal
government.

Since it was first dragged into the scandal, E&Y has attracted a high
degree of sympathy – even from those in the Equitable Members Action Group.

Privately, senior figures at the firm have always said they would listen to
any reasonable offer to settle out of court. And while they have always
insisted, somewhat bullishly, they would settle for any sum less than the
lawyers’ fees they would incur in fighting the case, the likelihood is partners
would have paid more than that to avoid the negative publicity they have
endured.

The fat lady hasn’t sung quite yet. There is a small chance of further
litigation from disgruntled former executives. More troubling is the threat of
disciplinary action from the Joint Disciplinary Scheme.

And, without wishing to pre-judge, there could be a case to answer – after
all, the JDS does not need to prove that E&Y caused any financial loss by
issuing an unqualified audit opinion.

But for now, the outcome of the E&Y case has done the profession a great
service.

For too long the principle that auditors, with their bottomless pockets, are
easy targets, has reigned supreme in the City. Whatever the underlying reasons
for the collapse of the Equitable case, the outcome should send a clear signal
to litigants that auditors should not be seen as a soft touch.