On April 16, 2025, the Financial Reporting Council (FRC) announced the opening of an investigation into Ernst & Young (EY) regarding its statutory audits of Post Office Limited for the financial years 2015 through 2018. This inquiry comes in the wake of the Horizon IT scandal, which has been described as the UK’s most widespread miscarriage of justice, affecting hundreds of sub-postmasters wrongfully convicted of theft and fraud.
The FRC's investigation aims to scrutinize whether EY met the auditing standards applicable at the time, specifically focusing on the role of statutory auditors rather than the broader issues related to the Horizon IT system itself. This decision was made during a board meeting on March 13, 2025, shortly after public hearings related to the Post Office Horizon IT Inquiry concluded.
Despite the Post Office not being classified as a Public Interest Entity (PIE), the FRC decided to reclaim oversight of the matter due to heightened public interest considerations. “While the [Horizon IT] Inquiry was extensive, it purposefully did not encompass the role or knowledge of external auditors in its scope,” the FRC stated in its official press notice.
The investigation will particularly examine the audits conducted during a period when more than 900 sub-postmasters were prosecuted based on faulty data from the Horizon software, developed by Fujitsu. This software erroneously indicated financial shortfalls, leading to wrongful accusations of theft, fraud, and false accounting against innocent individuals.
The scandal has garnered significant public attention, especially following its dramatization in an ITV series, which highlighted the plight of the sub-postmasters and the systemic failures that led to their convictions. Many of those affected are still awaiting compensation, with the government having taken over the compensation scheme earlier this year, pledging approximately £1.8 billion for Horizon-related claims.
Sub-postmaster campaigners Lee Castleton, Seema Misra, and Chris Head are set to be honored with OBEs at Windsor Castle on the same day as the FRC's announcement, a recognition of their efforts in bringing the scandal to light. Misra, who was wrongfully convicted, has been vocal about the need for justice and accountability.
In an earlier inquiry hearing, it was revealed that EY had warned Alice Perkins, the Post Office chair in 2011, about the risks associated with the Horizon software. Notes from that meeting indicated concerns raised by a sub-postmaster regarding a “systems problem” with Horizon. However, Perkins did not escalate these concerns internally, nor did she reference the EY meeting when questions about Horizon arose in subsequent years.
The FRC's investigation into EY is part of a broader scrutiny of the auditing practices of major accounting firms. In recent years, the FRC has fined EY and its rival firms significant amounts for various audit failures. For instance, last May, EY and PricewaterhouseCoopers were fined a combined £9.3 million for their auditing failures related to the collapse of London Capital & Finance, which resulted in substantial financial losses for investors.
The ongoing inquiry into the Post Office scandal has revealed that the organization spent over £130 million of taxpayer money defending its actions during the inquiry. This expenditure has raised further questions about accountability and the ethical responsibilities of firms like EY and the Post Office itself.
As the FRC moves forward with its investigation, many are keenly watching how this will unfold and whether it will lead to any significant changes in the auditing practices of large firms. The scrutiny of EY's role, in particular, may set important precedents for how audit failures are handled in the future.
In light of the FRC's investigation, EY has stated, "We take our responsibilities extremely seriously and will be fully cooperating with the FRC." This commitment to transparency will be crucial as the investigation progresses and the public seeks answers regarding the accountability of those who played a role in this scandal.
As the inquiry continues, the victims of the Horizon scandal and their advocates remain hopeful for justice. The investigation into EY's audits could be a pivotal moment in addressing the wrongs inflicted upon the sub-postmasters and ensuring that such a miscarriage of justice does not happen again.
The FRC's investigation is expected to take some time, with formal findings from the broader inquiry still pending. However, the implications of this investigation are likely to resonate throughout the accounting profession and beyond, as the public demands greater accountability and transparency from those in positions of power.
In a society that values justice, the outcomes of this investigation will not only impact the individuals involved but also shape the future of auditing standards and practices in the UK.
