Ernst & Young is being pursued through the courts by its former client, spread betting company WorldSpreads Ltd (WSL), for alleged negligence in its audit work.
The betting company said it could no longer trade following a shortfall, which had been allowed to grow over several years in its client account balances. WorldSpreads says the shortfall to clients may be in excess of £22m.
The case was yesterday transferred to the Commercial Court by Mr Justice Peter Kelly on consent between the parties.
WorldSpreads Ltd - a subsidiary of WorldSpreads plc registered in Ireland - claims that E&Y was negligent in carrying out services and obligations to the company in relation to audits carried out between 2007 and 2011; E&Y has been auditor since 2007.
AS a result of reports into WSL's activities by the UK Financial Services Authority in 2008 and 2009, concerns were raised about the company's transaction reporting.
WSL said that E&Y issued unmodified opinions on its financial statement audits from March 2007. The opinion listed breaches of regulations and in addition stated that WSL maintained systems to comply with the FSA's 'client asset sourcebook' rules, the Irish Times reported.
But in March disclosures by the finance controller revealed dire shortfalls in client money, which had also not been segregated in a separate account.
The betting company said its auditor failed to consider the FSA's concerns and failed to identify that financial statements/reports received from WSL had been manipulated.
WSL is further claiming that E&Y failed to provide an appropriate opinion on the financial statements and failed to ensure proper accounting policies were adopted by the company.
E&Y has also been accused of failing to recognise that circumstances existed which allowed misstatement of financial statements. The accounting firm is also accused of failing to promptly report breaches identified in 2007 to the FSA.
In a statement, E&Y said: 'Ernst & Young do not accept that we are liable for any losses suffered by Worldspreads or any related party and we will vigorously defend any proceedings.
'Any audit depends to a substantial degree upon the openness, honesty and transparency of the management of the company being audited and on the auditor being supplied with full accurate and complete information.
'As the matter is the subject of litigation it would be inappropriate for us to comment further.'
