Ireland's top legal and accountancy firms have been among the few financial beneficiaries of the banking crisis – to which the "Big Four" audit firms have, in particular, made a significant contribution. Between 2008 and 2013, the Central Bank paid some €53 million in fees to seven such firms for legal advice, and for auditing and other services. Most of the payments (€20.5 million) were made last year to the three of the Big Four accounting firms that were involved in stress-testing the balance sheets of some domestic banks.
The role of the Big Four in the banking collapse has yet to be adequately investigated, and properly explained. How did the banks covered by the government guarantee in 2008 all receive unqualified audit reports then, and in prior years? The banks in their financial statements were legally required to provide a “true and fair view” of their results. And as their audited accounts were published without qualification, this was also meant to reassure the shareholders and the public of their financial health. Nevertheless, the banks subsequently required massive State support, via a blanket government guarantee and later by recapitalisation – underwritten and paid for by taxpayers. While bank shareholders lost almost all their investment.
Ironically, some of those same accounting firms that failed so spectacularly to detect the banking crisis of 2008 were nevertheless chosen last year to conduct balance sheet assessment (BSA) tests on the banks. EY, formerly called Ernst & Young, received up to €10.5 million for its balance sheet assessment tests of AIB and Permanent TSB. EY also audited the accounts of Anglo Irish Bank before its collapse.
The fees paid by the Central Bank – €53 million – relating to the bank crisis were high, and of which only half went out to public tender. The Central Bank should clarify matters in that regard. But it should also explain how EY, given its dismal auditing record on Anglo merited such confidence this time.