There is a complete desert of information on the issue of the auditing of Anglo Irish Bank by Ernst & Young.
The first pertinent question to ask is, who were the accountants, as opposed to the auditors? Were Ernst & Young also the accountants?
The standard of care for an auditor is, almost invariably, that of the reasonably careful member of his profession. In short, just like a medical practitioner, the auditor is judged by the standards of practice among his peers.
There is a difference; the procedures to be followed by auditors are, in a sense, codified in accounting standards. Even where an accounting standard is not to be observed as a legal requirement, a failure to follow it is strong evidence of negligence. A court will not require proof by evidence of an expert on such a matter, just proof of the facts. Of course the plaintiff will still have to prove the loss flowed from the breach.
An auditor is entitled to rely on the internal controls in a company, particularly a large one. This is the reason why the identity of the accountant is important; if the internal controls were deficient Ernst & Young would have difficulty in relying on them if they established them or failed to implement them.
An auditor is entitled to rely on the assurances from management about the accounts. Nevertheless, an audit has to be planned and the plan has to take into account that the assurances from the management may be false. Therefore the auditor should consider where and how corroboration of information can be obtained.
In the case of Anglo Irish Bank, if IFSRA knew of the large Fitzpatrick loans for years, why did Ernst & Young not know of them? We know for sure that the loans were not reflected in the annual accounts and the accounts are required by law to show a true and fair picture of the state of the company’s accounts; that is precisely the averment required of an auditor in signing off on the accounts.
So, did Ernst & Young know of the loans and if they did not, why did they not? What added information did IFSRA have that Ernst & Young did not have?
Or, if IFSRA got the information, why did Ernst & Young not look to IFSRA on a regular basis to cross check what IFSRA knew with what Ernst & Young believed to be the case?