PwC Tagged in Audit Failure Over Collapse of Iceland’s Banks
While some of the international lenders are still recovering their billions worth of credits extended to Icelandic banks that have declared bankruptcy in 2008, an Icelandic prosecutor-commissioned group of investigators found an audit failure committed by PwC.
The international investigators said in a report, which was prepared by independent experts from Norway and France, that the accounting firm failed to address misrepresentations in the financial statements of collapsed Icelandic banks Landsbanki and Glitnir, which allegedly committed overstatements in their financial status to save their businesses from failing.
According to the report, Landsbanki’s and Glitnir’s misstatements have concealed warnings regarding their impending collapse and hidden the more than 25 percent of capitals that the banks credited to their owners Björgólfur Thor Björgólfsson of Landsbanki and Jón Ásgeir Jóhannesson, of Glitnir, including other entities connected to the banks.
This reflected the audit failure committed by PwC to the accounts of the two banks that were already in the verge of failing in the later part of 2007, added the report.
Had the financial misstatements been detected ahead of time, the report said, the Icelandic banks could have been deprived of the license to carry on with their operations, cancelling their profits in 2007. Landsbanki allegedly claimed in 2008 large deposits from its British and Dutch customers to their online accounts in Landsbanki’s Icesave.
PwC’s audit failure contributed to the losses incurred in the faulty accounts of the banks, said the investigators who have been probing the matter to find out criminal acts connected to the bankruptcy.
Despite the report’s revelation of PwC’s audit failure, the accounting company remained steadfast with its audit, while showing willingness to cooperate with the investigation of the prosecutors.
Earlier, in November 2010, executives from the Big Four accounting firms Deloitte, Ernst & Young, KPMG and PricewaterhouseCoopers defended audit companies in front of United Kingdom House of Lords’ Economics Affairs Committee, saying they are never to blame for not sounding the alarm when the banking sector was in the verge of falling down.
The Big Four argued it was beyond their business to do assessment in failing companies after the House of Lords Economics Affairs Committee questioned the role of audit companies during the financial crisis.
The inquiry by the Lords into the role of audit companies in the financial crisis is expected to culminate before the year 2010 ends.