Another mess for PWC

Posted on

FT.com / Companies / Financial Services - Shareholders ponder Cattles legal action.

Some of us have been warning one or more of the Big 4 auditors will fail. It seems likely regulators now agree.

So it's timely to note that PWC are in more trouble:

Cattles plc has admitted to a breakdown in internal controls, which resulted in its impairment policies being incorrectly applied. Its shares were suspended in April this year following the discovery of the accounting errors.

Last month Cattles said in a statement that the balance sheet at the end of December 2008 would have been likely to show a deficiency of shareholders’ funds of £197m ($320m) with loans and advances to customers of £2.5bn and gross external borrowings of £2.7bn. Its numbers are unaudited.

Shareholders have been called to an extraordinary meeting today so that Cattles can explain the “serious loss of capital” caused by the higher than expected impairment provisions.

PwC, the company’s auditors, resigned earlier this month .

On Tuesday David Greene, head of litigation at Edwin Coe, said the law firm had hired barristers and forensic accountants and was examining whether legal action could be taken against former directors or against PwC as former auditors.

The Accountancy and Actuarial Discipline Board, the independent investigative and disciplinary body for accountants and actuaries in the UK, said in July that it had launched an investigation into the conduct of members at Cattles and of PwC as auditors to Cattles.

PwC would not comment.

Well of course it wouldn't.

But prima facie the accounts were wrong. And it was not a one off. And the question has to arise about how long cut price audit can last when this sort of problem recurs time and again.

Audit risk is meant to be born by auditors. It is being externalised to shareholders and society at large. Is that sustainable?

I doubt it.