Record figures are bandied around like balloons in a global negligence shocker from Cattles and PwC.
According to the High Court claim,accounting firm PwC failed to spot a massive £840m loss in Cattles £2.5bn loan book. Instead, the auditor gave Cattles a clean bill of health for two years, allowing the losses to balloon and creditors to fall increasingly out of pocket.
However, PwC, while mounting their legal defense, called the allegations “inflated” and “misguided”.
It also hit out against Cattles former directors, who PwC said had been accused last year of acting “without integrity” by the Financial Services Authority.
From 2006 to 2007, Cattles claims that PwC failed to recognise the “gross accounting misstatements”, which ultimately led to a string of profit warnings and forced the company to suspend shares in 2009.
Cattles alleges PwC incorrectly classified loans that were in long-term arrears “which should have been treated as impaired” revealing the company was no longer financially viable. When the problem was discovered, Cattles said it was forced to report a loss in 2008 of £745m. It also restated earnings from the previous year to a loss of £98.5m, from a profit of £165.3m.
The FSA investigation, concluded in January 2012, found that the Cattles’ annual report contained “highly misleading arrears, impairment and profit figures”.
In a preliminary legal hearing in 2011, Cattles won the right to demand PwC produce secret documents relating to past audits of the company. The pre-disclosure hearing, which cost more than £250,000 in fees, also gave PwC the right to gain access to the case material currently being assembled by Cattles and its lawyers, Ashurst.
PwC said: “We are disappointed that this claim has been issued given the FSA’s censure of the company for market abuse as well as the FSA’s conclusion that certain directors of Cattles were found to have acted without integrity in discharging their responsibilities.
“This is an inflated and misguided claim and, as we have made clear before, we will vigorously defend our work.”
The case is already under investigation by the Accounting & Actuarial Disciplinary Board and comes at a time when the entire audit industry is facing a regulatory shake-up.
Cases like these highlight the importance of professional indemnity insurance and investing in the protection of your business.