E&Y and Akai Case: An Important Lesson for CFOs, Auditors

If there is a lesson CFOs and auditing firms should pick from the recently settled case between Ernst & Young LPP and Borelli Walsh, the liquidator of Akai Holdings, it would be that altering documents for audits could lead to serious consequences, such as bankruptcy and a lawsuit.


After investigating a partner for falsifying documents, Ernst & Young has reached a settlement with Borrelli Walsh, the liquidator of Akai Holdings Limited, for an undisclosed amount.


A consumer electronics maker and then owner of the Singer Brand of sewing machines, Akai Holdings went bankrupt in 2000 owing creditors about $1.11 billion. It is Hong Kong’s biggest ever bankruptcy. Before the company collapsed, its auditor was E&Y.


In a statement e-mailed to CFO Innovation Asia, E&Y says they began an internal investigation after allegations of document alterations were made by Borrelli Walsh’s counsel last week.  The firm also states that the investigation has made clear that certain documents produced for the audits in 1998 and 1999 could no longer be relied on due to the action of the audit manager in early 2000. 


“That individual, who is now a partner with  the firm, has been suspended from his duties, pending the completion of the internal disciplinary process,” reveals Ernst & Young in the statement,  adding that a former EY Hong Kong professional may have been involved and that the firm has informed the relevant regulatory body and will continue to engage with it.


“We are dismayed by the unexpected circumstances that have arisen. While we do everything we can to live our values, no global organization of more than 135,000 people can be totally insulated from the risk of one or more individuals not upholding these values," says David Sun, Ernst & Young co-area managing partner for the Far East Area.


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