ONE OF THE WORLD’S largest auditing firms is set to face a disciplinary hearing from an accountancy regulator over a number of apparent failures in its work auditing Anglo Irish Bank.

The Chartered Accounts Regulatory Board (CARB)’s special investigator John Purcell believes there are three cases where there are major failings in Ernst & Young’s work producing Anglo’s 2008 annual accounts.

Specifically, Purcell says there is evidence suggesting E&Y failed to detect the scale of the loans by Anglo to its then-chairman Seán FitzPatrick, and how those loans had been ‘systematically’ refinanced over the end of each year.

These loans should have been detected and disclosed in the first set of Anglo’s financial statements published in December 2008, Purcell believed.

He also says he believes E&Y had failed to adequately report the circular transactions between Anglo and Irish Life & Permanent – which saw each bank lend billions to the other, for mere hours at time, in order to improve the overall picture of each bank’s loan book.

Purcell said the auditors had also failed to adequately disclose a loan made to William McAteer, a director of the company, in the 2008 financial statements.

The cases have now ben referred to CARB’s disciplinary panel. CARB is the regulatory arm of Chartered Accoutants Ireland, for a full hearing.

E&Y defence

Ernst & Young said it disagreed “fundamentally” with Purcell’s findings, stressed that they were only preliminary and did not constitute an adverse finding against it.

“We will vigorously defend our work before a hearing of the Chartered Accountants Regulatory Board’s Disciplinary Panel which will consider whether or not any such criticism is justified,” it said in a press statement.

The company also stated that it was up to Anglo and its directors, under Irish law, to ensure that financial statements were prepared in accordance with the relevant legal standards – and that E&Y’s role was simply to audit those statements.

“Any audit depends to a substantial degree upon the openness, honesty and transparency of the management of the company being audited,” it said.

E&Y also asserted that the Office of the Director of Corporate Enforcement is investigating Anglo Irish Bank’s former management in relation to the “suspected withholding of information from auditors”.