Cattles takes former auditor PwC to court

Subprime lender Cattles has launched a multimillion-pound High Court claim for damages against PwC alleging failings in the way the Big Four firm audited its accounts.

Cattles, which is currently being wound down, claims PwC failed to spot danger signs in its accounts during audits in 2006 and 2007. Mis-stating the financial position of the company led to it accumulating £1.6bn in debts and liabilities.

A High Court date is expected to be set for early next year.

A spokesperson for the company confirmed that “after a thorough, independent and objective review of the merits of this claim, it is clear to us that PwC were negligent in their role as auditors. As a consequence, Cattles and its creditors suffered very significant losses.”

PwC has vigorously denied the allegations: “We are disappointed that this claim has been issued given the FSA's censure of the company for market abuse.” PwC added that it was an “inflated and misguided” claim.

Continued...

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Comments

Who would want to do audits?    1 thanks

Ian McTernan CTA | | Permalink

When people can launch a case like this when it is clear the auditors were not provided with full information, who would want to be an auditor?

If only the big audit firms could all refuse to do audits until the responsibility issue has been clarified!

I'm not a big fan of audits for numerous reasons, the chief one being it is way too easy for the directors to pull the wool over the auditors eyes in larger companies and then the auditors get the blame when the fraud comes to light years later.  How exactly auditors are supposed to prevent this sort of thing happening given the budget and time restraints and formula approach to audit regulations and the fact the self same directors pay the audit fees is beyond me.

Highlighting the Accuracy of Provisions

Ian-Heath | | Permalink

In any bank there are bound to be loans in arrears and the provisioning for bad debt is a matter of professional judgement for the Banker. If provisions are too great the Bank will look weak but in fact the long term quality of the Loan book is improved. If provisions are too small the Bank looks great in the short term but it may not survive the following years.

Provisioning is therefore a balancing act that even very experienced and prudent Bankers get wrong quite frequently.

How an auditor is supposed to know any better, particularly when faced with a possibly corrupt Director who furnishes incomplete or misleasding information is open to question.

Perhaps all Bank audit reports should be qualified? 

I agree, Ian

duncanphilpstate | | Permalink

I agree, Ian. This does highlight how audit is a thankless task, where your fees are under pressure if all goes smoothly and you'll get sued for multiples of your cumualtive fee on the client if it doesn't go smoothly. (Yet still the Big 4 partners seem to have a good lifestyle...)

Even if Big 4 or any other firm can't refuse to do an audit, they could always think about getting tougher on qualified and "no chance" audit reports. I recall when I was training in a large firm giving up on any of my actual audit work making any difference to the end result as we never came over anything significant enough to get passed up the hierarchy. What really mattered were the partners' discussions of grey areas with the directors, which we as the audit team weren't privy to anyway.

I would like to see a lot more tough audit reports and not the vanilla rubbish. But I suppose auditors would get sued by someone else if they tried that...

Question

The Rogue | | Permalink

How would they try to prove the auditors made mistakes?  Do they have on record all the information which was passed to the auditors and in which there were identifiable errors?  If so then were the Directors were responsible for the errors anyway?

I admit that my experience of audit is as the company account in a fairly straightforward £20m turnover group who gets audited every year.  This article is about far larger concerns.  In our situation anything the auditor picks up (which is rare) is usually immaterial.

Steve-EBL's picture

Get out of bed

Steve-EBL | | Permalink

If auditors weren't so "in bed" with the firms that employ them, then this would happen less. Auditors dont want to rock the boat too much and let the managers get away with stuff to an extent. There are lots of group statements misstated due to auditors having insufficient independence and an overarching profit motive rather than service to the public. Not the text book professional anymore.

Nick Graves's picture

Well, actually

Nick Graves | | Permalink

Ian-Heath wrote:

In any bank there are bound to be loans in arrears and the provisioning for bad debt is a matter of professional judgement for the Banker. If provisions are too great the Bank will look weak but in fact the long term quality of the Loan book is improved. If provisions are too small the Bank looks great in the short term but it may not survive the following years.

Provisioning is therefore a balancing act that even very experienced and prudent Bankers get wrong quite frequently.

How an auditor is supposed to know any better, particularly when faced with a possibly corrupt Director who furnishes incomplete or misleasding information is open to question.

Perhaps all Bank audit reports should be qualified? 

...since the entire banking system is insolvent and only kept going via a gov't-sponsored Ponzi scheme, maybe all of the partners of the big four need to turn themselves in down the local nick.

But then, so too would those party to the fraud and it ain't gonna happen.

Since auditors are invariably going into a business with an incredibly complex operation (anything to do with finance, banking or pensions) they can only be reliant upon the re-assurances they're given. It's a miracle if they uncover anything at all, really.

Maybe it's time to drop the pretence over auditing & say simply, caveat emptor.

 

 

 

 

Steve-EBL's picture

War and peace

Steve-EBL | | Permalink

We can know only that we know nothing. And that is the highest degree of human wisdom ...