Centro auditor agrees ASIC ban

Q: What did ASIC conclude about the auditor's conduct in the Centro audits?

ASIC found that Mr Cougle failed to carry out or perform adequately and properly the duties of an auditor and was in breach of Australian Auditing Standards for his work on Centro's 2006–07 reports.

A PricewaterhouseCoopers partner, Stephen John Cougle, has agreed to a temporary ban on auditing work following his involvement in approving Centro's misleading financial accounts in 2006-07.

By InvestSMART · 20 Nov 2012

By InvestSMART ·
20 Nov 2012

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A PricewaterhouseCoopers partner, Stephen John Cougle, has agreed to a temporary ban on auditing work following his involvement in approving Centro's misleading financial accounts in 2006-07.

The accounts wrongly classified $2.1 billion worth of debt as non-current when in fact it was current. Centro came close to collapse when it was unable to re-finance the debt during the global financial crisis.

Now a partner at Pricewaterhouse-Coopers, Mr Cougle led the team that audited Centro. He has promised the corporate watchdog he will not practise as a registered auditor until June 30, 2015, and has agreed to additional training, and to submit his first three audits after the suspension for checking by another auditor approved by the Australian Securities and Investments Commission.

A spokeswoman for PWC said Mr Cougle would remain a partner and stay with the firm working on internal issues. "The firm has acknowledged that there was a deficiency in the audit work undertaken for Centro in 2007." Mr Cougle said, "I led the Centro audit team and take responsibility for our work", the spokeswoman said.

The enforceable undertaking follows civil action against current and former directors of Centro and after shareholders settled a class action against the company and PWC for $200 million.

ASIC investigated the 2006-07 reports of Centro Properties Group and Centro Retail Group after the companies came close to collapsing when they could not refinance their debts.

ASIC found "Mr Cougle failed to carry out or perform adequately and properly the duties of an auditor" and was in breach of Australian Auditing Standards.

Commissioner John Price said yesterday: "Following auditing standards is not merely a compliance hurdle to clear. Investors will not be properly informed where audit deficiencies result in material misstatements in financial reports not being detected and addressed."

"There should be no doubt now that auditors must obtain reasonable assurance that a financial report is not materially misstated."

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Frequently Asked Questions about this Article…

What was the Centro accounting issue and why does it matter for investors?

Centro's 2006–07 financial accounts wrongly classified about $2.1 billion of debt as non‑current when it was actually current. That misclassification mattered because it hid short‑term repayment risk and contributed to Centro nearly collapsing when it could not refinance the debt during the global financial crisis — showing how material misstatements can mislead investors about a company's financial health.

Who is the auditor involved and what action did PricewaterhouseCoopers take?

The auditor was Stephen John Cougle, a partner at PricewaterhouseCoopers (PwC) who led the Centro audit team. PwC said Mr Cougle would remain a partner working on internal issues and the firm acknowledged there was a deficiency in the audit work undertaken for Centro in 2007.

What penalty or restriction did the corporate watchdog ASIC apply to the auditor?

Stephen Cougle agreed to a temporary ban on practising as a registered auditor until June 30, 2015. As part of the enforceable undertaking he also agreed to additional training and to have his first three audits after the suspension checked by another auditor approved by the Australian Securities and Investments Commission (ASIC).

What did ASIC conclude about the auditor's conduct in the Centro audits?

ASIC found that Mr Cougle "failed to carry out or perform adequately and properly the duties of an auditor" and was in breach of Australian Auditing Standards for his work on Centro's 2006–07 reports.

How did the Centro accounting problems affect shareholders and lead to legal action?

The accounting problems led to civil action against current and former Centro directors and a class action involving shareholders. Shareholders settled a class action against Centro and PwC for $200 million.

Why do auditing standards and proper audits matter to everyday investors?

Auditing standards exist to give investors reasonable assurance that financial reports are not materially misstated. As ASIC Commissioner John Price noted, audit deficiencies that fail to detect material misstatements mean investors are not properly informed about a company's true financial position — which can affect investment decisions and risk assessments.

What part of Centro's business reports did ASIC investigate?

ASIC investigated the 2006–07 reports of Centro Properties Group and Centro Retail Group after both companies came close to collapsing when they could not refinance their debts during the global financial crisis.

What practical steps can investors take to guard against relying on misstated financial reports?

Investors should look for clear auditor opinions in financial reports, note any qualifications or emphasis of matter, pay attention to disclosures about debt maturities and refinancing risk, and follow regulator findings (like ASIC reports) or legal settlements that highlight past audit failures. These steps help spot companies with higher risk of material misstatements.