PwC Facing Legal Action over Cattles Audit
PwC is facing a potential £840m legal action from sub-prime lender Cattles over claims the firm was responsible for ‘gross misstatement’ in the company’s accounts for several years.
In a preliminary legal hearing at the High Courts of Justice last month, Cattles won the right to demand PwC produce secret documents relating to past audits of the company. The pre-disclosure hearing also gave PwC the right to gain access to the case material currently being assembled by Cattles and its lawyers, according to the Daily Telegraph.
The company alleges that between 2005 and 2007 PwC was to blame for ‘a gross misstatement at the heart of the accounts’ that ultimately led to numerous profit warnings and left the company close to insolvency. Shares in Cattles were suspended in 2009.
The company alleges PwC incorrectly classified loans that were in long-term arrears ‘which should have been treated as impaired’, according to an outline of the case at the preliminary hearing. 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 Daily Telegraph says court documents suggest Cattles’ claims the action against PwC could result in ‘substantial damages’. It is thought Cattles will file for a formal hearing in 2012.
A spokesman for PwC said: ‘We are not aware of a claim against us. In respect of the discovery order, it is a preliminary process for information sharing between both sides. As previously stated, we will continue to vigorously defend our work.’
The case is already under investigation by the Accounting & Actuarial Disciplinary Board (AADB). The AADB has also announced there will be a disciplinary hearing later this month, over a separate formal complaint against PwC. The complaint concerns the firm’s preparation of reports to the Financial Services Authority about client assets accounting when it was auditing JP Morgan Securities Ltd between 2002 and 2008.