Accounting Standards Fiasco Blamed on Auditors
SYDNEY, Australia – PricewaterhouseCoopers, KPMG, and Deloitte bore the blame over the erroneous classification of billions of dollars of Centro debt as one investigator from the Australian Securities and Investments Commission revealed that the auditors had trouble interpreting accounting standards changes after 2005.
Five of PricewaterhouseCoopers’ accounting firms in India had recently faced charges of abetting corruption in Indian IT service provider, Satyam computers, after failing to detect the alleged financial overstatement made by the firm that inflated its cash balances by $1 billion, making the investors to believe the business was more viable than not.
As accounting firms, not least the Big Four, continue to face issues in how they conduct their auditing in different companies, regulators like the Public Company Accounting Oversight Board are constantly coming up with new rulings to improve audit services.
The recent case of PricewaterhouseCoopers affiliates in India was the first to cost big financial penalty on any accounting firms.
Meanwhile, the latest issue involving PricewaterhouseCoopers in particular implicated one junior PwC staff in an erroneous classification of a $1.1 billion debt of Centro, an Australian retail property ownership provider.
The PwC staff should have classified the debt, which was due for payment on December 2007, as short term. Although corrections were fixed in final accounts, Centro Group was later struck with billions more of debts.
Furthermore, Scott Purdon, who is under cross-examination by the Federal Court in Melbourne, conceded that several auditors who have gone through Centro made shortcomings in their respective tenure as auditors of the company.
According to the federal court, a KPMG partner had failed to interpret the changes in accounting standards and was subsequently forced to agree to an undertaking while Deloitte had allegedly misinterpreted the information posted on Centro’s website.
In his affidavit, PwC auditor Andrew Cronin said he requested Paul Belcher, Centro’s accountant, to draw the directors’ attention to the revised accounting standards at an audit committee meeting to be held in September, to which Cronin attended.
Cronin said he was confident that Belcher did his request and directed the directors’ attention to the changed classification, only to find out that the reclassification was not directed to their attention. He told the court about it just this week.
The Australian securities regulator seeks civil penalties against eight Centro directors and officers who were accused of failing to uncover the company’s duty to pay billions of dollars of debts within a few months.