With the audit profession under pressure worldwide, it is time to come up with a list of the firms and specific partners responsible for signing some of the most inaccurate accounts ever filed.
I am dealing with a constituent who got caught up with the collapse of Commercial Nominees (an APRA approved trustee to about 475 DIY super funds which collapsed taking everyone’s life savings with it). It turns out that CNA’s auditors were Arthur Anderson, the same auditors who reckoned HIH, Enron, Sunbeam and Bond Corp were in good shape right before those companies went belly up leaving thousands of people destitute.
So a suggestion for a new list – the Auditors who obviously can’t do their job properly!
Extract from Trevor Sykes’s Bold Riders
“If the audit profession cannot function any more usefully than it did in Australia in the 1980s then it might as well be abolished. As almost every audit firm named in this book has been the subject of a large lawsuit it is unfortunately risky to say much more. Hopefully, the lawsuits against auditors and their insurers will improve the diligence of the profession in future. One of the few to behave honourably was Mann Judd, which chose to sacrifice the Westmex account – one of its biggest and certainly its fastest-growing – rather than endorse what it believed to be unsound accounting policies. Sadly, but understandably, this was not followed by any great rush of business from companies anxious to have Mann Judd audit their accounts.”
Okay, let’s kick-start this list:
Oh dear, did I really sign these accounts as true and fair
Adelaide Steamship: Deloitte Touche Tohmatsu (who ever they were know as then) were the auditors who failed to account correctly for loans and inter-company transactions in the 1990 Adelaide Steamship accounts. As a result it is claimed that reported profit was overstated by US$410m.
Air New Zealand: the 2000 accounts claimed Ansett was travelling just fine and they’d be able to pay all their debts no probs. The complicit auditor to this was from Deloitte Touche Tohmatsu.
AWA: Deloitte Haskins & Sells (as they then were) signed off on two AWA audits while Andy Koval was gambling away $50m of shareholders money on the FX markets. The DHS audit partner was a mate of the managing director and the internal auditor.
Barings Bank: Coopers & Lybrand (now part of PricewaterhouseCoopers) and Deloitte & Touche were sued by the liquidators after the spectactular 1995 collapse of the Bank. The liquidators were Ernst & Young, then KPMG.
Bond Corporation is a highly profitable operation that will be around for years: Arthur Andersen are before the South Australian Supreme Court at the moment trying to defend this one after Price Waterhouse wisely let this bit of audit work go in the late 1980s.
Centaur Mining & Exploration had net assets of $110m on Sept 5, 2000. This fantasy was signed off by boutique outfit PKF. We now know Centaur will have a net deficiency of about $500 million yet Joe Gutnick still lives the high life.
Enron is highly profitable and solvent and we’d never shred documents: Arthur Andersen
ESM: a small government securities dealer in the USA, went out of business – the auditor was Alexander Grant & Co. (now known as Grant Thornton). The Managing Partner of the Miami office of the auditor was charged with confirming the false financial statements in exchange for cash payments. The collapse of ESM later led to the collapse of the Home State Savings bank in Ohio. The auditors were Arthur Andersen (of Ansett, HIH and Enron fame). Andersen later settled the claim for $US5.6 million.
FAI is totally solvent: Arthur Andersen
Foster’s Brewing Group: A $66 million fee paid to Alan Hawkins’s Equiticorp was dressed up as a foreign exchange transaction. This little fudge was tolerated by Price Waterhouse.
Harris Scarfe is totally solvent and has truckloads of valuable stock. This fantasy was approved by PriceWaterhouseCoopers.
HIH is worth a net $952.8 million on Oct 16, 2000: Arthur Andersen partner John Buttle is the unlucky guy who signed this one.
Infosentials: PKF partner JHM Marcard signed the accounts of Michael Schildberger’s failed company on October 13, 2000, claiming it was true and fair to say it had net assets of $20.13 million. Eleven weeks later it went into administration and creditors only got a few cents in the dollar. However at least PKF put a note in the accounts that the goodwill valuation of $12.8 million was an “inherent uncertainty” that was dependent on future trading and
National Australia Bank: the 2000 annual report was ‘free from material misstatement’ and mortgage servicing rights (MSR) did not rate a mention in the risk management section. 12 months later $4 billion was lost in Homeside because of MSR risk and the auditor who allowed this not to be mentioned was KPMG’s Christoper Lewis. Mr Lewis headed the due diligence team sent by NAB from KPMG to inspect the Homeside books before the purchase and now he has been recruited by the bank to head up risk management worldwide. This is exactly the sort of cosiness between client and auditor that we don’t want to see.
National Safety Council: Horwarth & Horwarth qualified the 1986 and 1987 accounts of the National Safety Council. There was $73 million “hole” in the balance sheet, but instead of reporting this to the NSC board, they told John Friedrich, who doctored the copy of the report given to the board. Horwarths had no direct communication with the board for over two years, all contact being through Friedrich.
National Textiles: the Hunter Valley textile company chaired by the PM’s brother Stan went broke just after Christmas in 2000. Just a few months before in September, the directors and the auditors Price Waterhouse Coopers, stated in the annual report that National Textiles was ‘a going concern’.
NSW Grains Board: it would be interesting to do a background check of the credentials of the auditors of this outfit because there is a financial hole to the tune of $160m and the current ICAC inquiry is turning up tales of altered financial reports and the like. Our understanding is that they had an internal auditor (Ernst & Young) and an external auditor being the Auditor General’s Office of NSW. This being the case you would have expected that someone would have picked up these anomalies, but alas we now have the collapse of the board and a truly state if not national disgrace!
One.tel claimed they had net assets of $944.8m on Sept 11, 2000. The audit partner who signed off on this fantasy was Stephen La Greca from BDO.
Pasminco made a $31 million profit in 1999-2000 and had net assets of $1.51 billion. In reality, the net debt was more than double the claimed $1.3 billion and Melbourne Ernst & Young partner Alan I Beckett was the man who signed the accounts saying this was “a true and fair view” of the company’s financial position.
Rothwells: KMG Hungerfords (as they then were) confirmed Rothwell’s 1984 and 1985 accounts gave a true and fair view. Investigating accountants Deloittes(!) subsequently concluded that Rothwells accounts had been falsified for years prior to its final collapse in 1988.
Sunbeam has been improved by Al Dunlap: Arthur Andersen
State Bank of South Australia is just fine: KPMG
Tricontinental is just fine: KPMG, which cost them $130 million in a settlement.
Yannon is not a problem and should not be disclosed: Price Waterhouse, which has kept the gig with Coles Myer despite this indiscretion.
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