LAWYERS for the Centro property group have lambasted the work done by the property group's former auditor, PricewaterhouseCoopers, in 2007, telling the Federal Court it resulted in a "botched audit" that highlighted incompetence, carelessness and a lack of supervision inside PwC.
The strong criticism during a class action case yesterday marks the first time Centro has attacked its former auditor for errors that resulted in misclassifications of billions of dollars of short-term debts and failures to disclose post-balance date items.
"No doubt PwC will try to put a benign spin on it," Centro Retail Trust's counsel, Peter Jopling, QC, told the court yesterday. "This was a botched audit. PwC made some errors that in this case can only be described as extremely basic."
Mr Jopling said while audits could be easy or mundane or complex, the PwC audit team assigned to examine the Centro Properties and Centro Retail groups "simply did not perform in their role in a careful or professional manner".
In lively and extended criticism of the audit firm, Mr Jopling told the court that the senior audit partner in charge of the Centro file, Stephen Cougle, was the sole witness PwC would offer the court, which is hearing a complex, multi-party class action.
He said this was far from satisfactory as the court had a right to hear from the more junior members of the PwC team who compiled Centro's flawed 2006-07 accounts and who, he said, had participated in errors and mistakes that compounded.
"There may well be consequences for PwC," Mr Jopling told the court. "No one is saying that Mr Cougle should not be called, but when it comes to issues of professional negligence, omissions, misleading conduct and the like, a number of people came to some mistakes, particularly junior staff, graduates and the like."
"It is not good enough for Mr Cougle to enter the witness box and say he did not know about a particular audit step or that he relied on others."
Mr Jopling said PwC's audit team completely missed information that was "right in front of their noses, staring at them", when they had inadequate information they lacked the initiative, time and inclination to follow it up or ask questions, and the work they did was "undertaken in a careless way".
Mr Jopling said the court would hear that Mr Cougle did not adequately supervise his team, especially the younger members, and Centro Retail suspected he had become overly complacent because he was coming to the end of his five years of examining Centro's accounts.
Mr Jopling also rejected PwC's suggestion that Centro had failed to tell the audit team everything, including that the property group's bankers were getting testy about refinancing. He said it was instead "an open and transparent audit and any suggestion that PwC was kept in the dark about anyone must really be rejected".
He said documents the court would see in coming weeks included PwC's internal criticisms of Centro, including poor communication inside Centro, poor management and lack of certain skills and lack of mentoring.
Mr Jopling noted that while the document was "damning" of Centro, "it will be our case that PwC does not seem to share this view in any normal way" with Centro.
Frequently Asked Questions about this Article…
What did Centro allege about PwC's 2007 audit of the Centro property group?
Centro's lawyers told the Federal Court the 2007 PricewaterhouseCoopers (PwC) audit was a "botched audit," accusing the firm of incompetence, carelessness and a lack of supervision. They say the audit led to misclassifications of billions of dollars of short-term debt and failures to disclose post‑balance‑date items in Centro's 2006–07 accounts.
Who is speaking for Centro in the class action and who did PwC put forward as a witness?
Centro Retail Trust's counsel, Peter Jopling QC, made the criticisms in court. PwC offered its senior audit partner on the Centro file, Stephen Cougle, as the sole witness, which Centro says is unsatisfactory because junior members who compiled the accounts also participated in the alleged errors.
What kinds of audit errors did Centro say PwC made?
Centro accused PwC of making what it described as extremely basic errors: missing information that was "right in front of their noses," failing to follow up or ask questions when information was inadequate, inadequate supervision of junior staff, and carrying out work in a careless way that compounded mistakes.
How did Centro respond to PwC's suggestion that Centro kept material information from the auditors?
Centro rejected PwC's suggestion that it failed to tell the audit team everything. Counsel Peter Jopling said the audit was "open and transparent" and that any claim PwC was kept in the dark — for example about bankers being testy on refinancing — should be rejected.
What specific financial problems were highlighted by the alleged audit failures?
The article says the alleged audit failures resulted in misclassifications of billions of dollars of short‑term debts and failures to disclose post‑balance‑date items, both of which can materially affect a company's reported financial position and liquidity picture.
Could the PwC audit criticisms lead to consequences for the audit firm?
Peter Jopling told the court "There may well be consequences for PwC." The story reports the criticism is part of an ongoing, complex multi‑party class action in the Federal Court; the article does not report any final outcome or specific penalties.
What internal documents about Centro did the article say PwC had, and how did Centro view them?
The article says PwC's internal documents included criticisms of Centro — noting poor communication, poor management, a lack of certain skills and lack of mentoring. Mr Jopling said while those documents are damning of Centro, "it will be our case that PwC does not seem to share this view in any normal way."
What should everyday investors take away from the Centro v PwC criticism of an audit?
The case highlights that audits can sometimes fail to catch or correctly classify material items, such as large short‑term debts or post‑balance‑date events. For investors, this underscores the importance of checking auditor reports, noting changes in auditors or auditor litigation, and treating large reclassifications or undisclosed events as potential red flags that may warrant closer scrutiny.
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