The U.K.'s accounting watchdog gave a "scathing" and "highly critical" initial report of EY's conduct in NMC Health Plc's audit, lawyers for the collapsed hospital operator alleged in the £2 billion ($2.7 billion) trial.
The Financial Reporting Council's provisional report found EY "demonstrated a complete lack of professional skepticism" and failed "to be alert to conditions that may have indicated possible fraud," in its last audit of NMC Health for 2018, lawyers for NMC's administrator, Alvarez & Marsal said in a court filing.
"EY's Audit of NMC was deficient in multiple respects. These failings are extremely serious," the FRC's provisional report concluded, according to court filings by NMC's lawyers prepared for the lengthy civil trial.
Alvarez & Marsal sued EY in London alleging negligence and failure to spot billions in hidden debt between 2012 and 2018 when EY was the auditor. NMC was put into administration in 2020 following allegations of fraud at the health care provider.
EY has "comprehensively challenged" NMC's arguments around the report, its lawyers said in court filings. EY denies the allegations and said the claims were "unfounded."
It is a provisional report that has not been made public until now. The FRC made clear at a pre-trial hearing that the report is not regarded as independent expert opinion, according to EY's lawyers. "The 'findings' on which NMC appears to place such a store, and which EY rejects, are in fact inadmissible and should be disregarded."
An FRC spokesperson didn't respond to an email for comment on the status of its final report.
The collapse of NMC sparked a flurry of lawsuits and investigations in the U.K. and U.S. as different sides point the finger of blame. The U.K.'s markets watchdog previously censured the fallen Middle Eastern hospital operator, saying the once listed firm misled investors about its debt position by as much as $4 billion.
