Accountancy Age, Accountancy Age, Thursday 10 June 2010 at 00:45:00

The investigation into Ernst & Young's audit of Equitable Life has opened fresh debate over the role of audit


The debacle over the audit of Equitable Life by Ernst & Young finally came to a close at the end of last week when the report of an appeal tribunal was published.

An earlier tribunal convened by the Joint Disciplinary Scheme had severely reprimanded Ernst & Young and auditor Kevin McNamara, imposed a 4.2m fine and awarded costs against them.

On appeal the fine was reduced to 500,000 and costs to 2.4m. The penalty was also changed to a ?reprimand?, removing the ?severe? element.

At stake in the appeal was the charge that McNamara and E&Y had compromised their objectivity and independence in dealing with the Equitable audit.

The appeal document makes for fascinating reading as it weighs the arguments and sometimes enters into almost philosophical areas to consider the issues.

In the end the appeal tribunal decided there was no evidence of a lack of independence and objectivity, but the technical issues on which this case rested will be worth reviewing for any auditor who has been in place for long periods with the same client.

In fact, what the case presents is cause to stop and reflect on how it is that an auditor not only maintains but also demonstrates his independence from the client.

For those who have been with same client for years, they will need to think about those issues more intensely now in the wake of the Equitable Life ruling, because it is an area where their work and conduct could be challenged in the event that disaster strikes
</br> Auditors will need to think about their processes, the relationship with the client, the personal relationships even record keeping.

Moreover, auditors will need to think about the quality and thoroughness of their work. It was the failure to conduct a key piece of work in the Equitable Life audit that led to the allegations about objectivity and independence.

The appeal concluded that faulty work could not be seen as meaning objectivity has been compromised. Regulators will need to take that conclusion on board. Auditors will need to think about how these allegations arise, even when unfounded, and how they ensure such suspicians are headed off even before they take hold.

And this is critical because without objectivity and independence an audit is next to worthless. It is the core principle an auditor should abide by and the element that reassures company owners.

Equitable demonstates why it needs to be maintained and protected.