EY’s UK businesses have denied they were negligent in their audits of NMC Health, the collapsed former FTSE 100 hospital operator, in a $2.7 billion legal ball that will refocus attention on the auditors’ area of ​​responsibility to detect fraud.

NMC from Abu Dhabi entered the administration in April 2020 after being targeted by short sellers in 2019 and beyond the discovery of $4 billion in debt which were hidden from his balance sheet. The case is one of the biggest frauds ever claimed at a FTSE 100 company.

legal claim, filed in the High Court of London NMC’s administrators in May alleged a number of failings by EY, including a failure to discover that client accounts had been fraudulently misrepresented and that NMC had failed to keep proper accounting records.

The claim also alleged that the Big Four auditor failed to verify NMC’s bank and debt balances, similar to claims against EY as auditor of the collapsed German company Wirecard.

Administrators Alvarez & Marsal, tasked with providing funds to repay NMC’s creditors, said more than $1.5 billion had been transferred from the group to its founder BR Shetty and two of his associates.

Shetty, himself a criminal figure in the UAE, claimed he was victim of fraud.

The case, which is not expected to go to full trial until 2024, is the latest flashpoint in the debate over auditors’ duty to detect fraud after British regulators increased requirements last year.

Auditors have long complained of an “expectation gap” between the public’s perception of their role and their actual responsibilities.

In its defense filed this month, EY said the audit was designed to provide “reasonable assurance” that the accounts were not materially misstated, but they did not guarantee this and did not relieve the company’s directors of “primary responsibility for the accuracy of these financial reports”.

The firm said the alleged fraud “involved the falsification and concealment of accounting records and other documents.”

He added that he was “unaware of the large number of payments to and from Dr Shetty’s personal bank accounts” and denied that he should have taken steps that would have detected the tampered records.

EY argued that the amount of damages it was ordered to pay the administrators should be reduced to reflect NMC’s negligence. It said that “many of those charged with governance at the NMC, including at the highest levels, are themselves guilty of fraud (including by deliberately making false statements to EY)”.

The firm’s defense also relies on outsourcing a significant portion of the NMC audit to its Middle East business. EY UK, which signed off on the NMC group’s accounts and is a defendant in the legal case, argued it should not be held liable for any failures in so-called audits of components of foreign operations. EY has not acknowledged any weaknesses in its Middle East business.

EY UK said it carried out its duties as the group’s auditor by giving “proper instructions” to the overseas auditors, primarily EY Middle East, and making sure it could rely on their work. The firm said it had “no reason to believe” that EY Middle East was not doing its job properly.

EY is a network of separate national and regional practices that share a global brand, similar to its competitors, a structure that has helped firms limit legal liabilities in one country from harming their finances in other countries.

EYwhich has charged almost £14m for its work since the NMC came out in 2012, said most of the administrators’ claims were invalid due to contractual and statutory limitation periods.