Ernst & Young faces scrutiny over Equitable Life accounts

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The Independent Online

Equitable Life's former auditors, Ernst & Young, will come under fresh scrutiny this week for its role in signing-off accounts which estimated the society could face liabilities that were 30 times lower than the actual level.

E&Y passed 1999's accounts last March, which estimated that court action over guaranteed annuity rates (GARs) would cost Equitable no more than £50m. But a Treasury return made by Equitable last year said the bill for fulfilling its obligations to GARs could run to £1.59bn.

A spokesman for E&Y said that the 1999 accounts were a "fair representation of Equitable's finances based on circumstances relevant at the time".

They followed a Court of Appeal decision which upheld the view that Equitable did not have to increase payments to 70,000 GAR policyholders. But both the set of accounts and the Treasury return came ahead of the House of Lords ruling last July, which went against predictions by forcing Equitable to increase its payouts to GARs. These payouts now appear to be worth collectively £1.5bn.

The actions of E&Y, which has resigned as Equitable's auditors, will be featured in the BBC's File on 4 radio programme tomorrow. The auditors are also being investigated, along with other former advisers, by the law firm Herbert Smith for Equitable to establish whether any party can be held responsible for the demise of the once-vaunted life assurer.

A spokesman for Equitable said: "The board has asked Herbert Smith to scrutinise the society's records to see whether legal action can be taken against its former directors or auditors."

Meanwhile, officials with Equitable have been meeting policyholders and indications are that the compromise proposals are receiving sufficient support, though many policyholders are unhappy.