Police raid E&Y's HK office in Akai enquiry

HONG KONG, Sept 30 (Reuters) - Police raided the Hong Kong offices of accounting firm Ernst & Young [ERNY.UL] as part of an investigation linked to the collapse of a local electronics firm nearly a decade ago, E&Y said on Wednesday.

E&Y said it "lent police every assistance" during Tuesday's raid when police seized a large number of documents related to its audit of the failed firm, Akai. This month, the liquidators for Akai had brought a negligence suit against E&Y with evidence of its audit fraud raised in court.

The South China Morning Post said the liquidators had asked for $400 million from E&Y before the case went to trial.

Last week, E&Y reached an out of court settlement in the trial and suspended a partner. The amount wasn't disclosed. It is conducting its own internal investigation in the case.

Akai was liquidated in 2000 after reporting losses of around $1.8 billion, making it the city's biggest bankruptcy at that time.

The case involving E&Y, one of the world's Big Four accounting firms, comes after other high-profile auditing scandals have emerged in Asia this year.

In January, an Indian affiliate of PricewaterhouseCoopers [PWC.UL] was roiled in the country's biggest corporate fraud involving IT services firm Satyam Computer Services (SATY.BO). Satyam was renamed Mahindra Satyam after it was acquired by Tech Mahindra (TEML.BO). [ID:nBOM476146]

A police spokeswoman in Hong Kong said a 41-year-old man had been arrested in relation to the Akai case but declined to give any names.

While Hong Hong is considered one of Asia's tighter audit jurisdictions, an independent watchdog, the Financial Reporting Council (FRC), was only formed in 2006 to address a lack of investigative powers to probe audit failures.

"This is the first test case, as it were," said Winnie Cheung, the CEO of Hong Kong's Institute of Chartered Public Accountants (HKICPA), which disciplines local accountants and may punish those implicated through fines and by stripping their licenses.

"Since then, (Hong Kong) has introduced a stronger and tighter, more independent regime," he said. (Reporting by James Pomfret; Editing by Doug Young and Anshuman Daga)