FRC investigating EY audit of NMC Health
Accountancy firm being dragged into watchdog’s probe of NMC Health’s financial statements
Ernst & Young is being investigated by the UK accounting watchdog over its audit of NMC Health, which collapsed into administration after revealing more than $4bn of hidden debt amid allegations of fraud.
The Financial Reporting Council on Monday said it had last month opened a probe into the 2018 audit of NMC Health’s financial statements.
The move means that EY will be dragged into one of the biggest accounting scandals to have hit the City of London in recent years, with questions being asked by regulators, investors and former managers about who was to blame for the sudden collapse of a former FTSE 100 company worth more than £4bn this time last year.
NMC’s founder BR Shetty last week claimed that a small group of current and former executives were responsible for the alleged fraud. The Financial Conduct Authority has launched a probe into the company.
The role of EY has been under scrutiny since the initial allegations by short seller Muddy Waters of financial irregularities at the company, which was then forced to admit that there were huge debts that had been taken out in its name that had not been disclosed to the board or the market.
The company last month revealed that net debt had risen to $6.6bn after its own investigations found hidden debt facilities, loans and cheques, more than three times higher than its last reported debt of $2.1bn. NMC said it had found evidence of suspected fraud in its investigations.
Muddy Waters also questioned the relationship between NMC and EY, pointing out that the board included former EY partners.
In a statement, EY said: “We can confirm that EY has been notified of the FRC’s intention to conduct an investigation into the audit of NMC Health plc for the year ended 31 December 2018. We will be fully co-operating with the FRC during their enquiries. It would be inappropriate to comment further at this time.”