Melt the chocolate (reserve a small piece for decoration) and water together in a double boiler, stirring constantly. Remove from the heat. Add the egg yolks and the sherry and mix well.
Whisk the egg whites in a bowl with an electric mixer until stiff. Gently fold the egg whites into the chocolate mixture, maintaining as much air as possible. Break the sponge cake into chunky pieces, or slice for neater layers.
In a large trifle bowl, layer the sponge and chocolate mixture finishing with a layer of whipped cream. Grate the reserved chocolate over the cream then place in the fridge to chill and set.