Author: By James Moore, Deputy Business Editor
The inquiry into PwC ? for its audit work on the beleaguered door-to-door lender Cattles ? brings the number of firms under investigation to 10, compared with just five last year.
The Accountancy and Actuarial Discipline Board (AADB) yesterday accepted that the recession was the likely reason for the increase, with a growing number of allegations of failings being levelled at professional advisers as an increasing number of companies find themselves in financial trouble. A spokeswoman said: “Activity has stepped up compared to this time last year. It is fair to say that these things tend to come to light when the economy takes a turn for the worst.
“We have seen more cases as more companies find themselves getting into difficulties. It is then that you see things have gone wrong and questions are asked about the way audits have been conducted.”
That could herald a string of further investigations during the coming months, with nearly 200,000 companies in financial difficulty as a result of the economic chill gripping Britain, according the restructuring specialist Begbies Traynor. On Wednesday, the Confederation of British Industry warned that the country faced a long, slow slog out of recession and official figures on second-quarter GDP will be watched closely today.
Cattles ? which specialises in selling high-interest loans to people on low incomes ? has been grappling with a cash crisis for several months now, thanks to the effects of the recession and a steep rise in bad debts. In February, PwC questioned the level of impairment charges taken to cover a sharp rise in problem lending and in April the company’s shares were suspended after two profits warnings.
The investigation into PwC came after Cattles admitted a “breakdown in internal controls” and fired six executives earlier this month. Its chief executive and chairman also quit.
The AADB said it was investigating PwC over the preparation, approval and audit of the financial statements of Cattles and its subsidiary, Welcome Financial Services, for the year ended 31 December 2007. It is also scrutinising the preparation, approval and review of the interim financial statements of Cattles for the six months to 30 June 2008 and public statements covering the financial position and performance of Cattles and/or Welcome Financial Services between 28 February 2008 and 20 February 2009.
PwC said it would co-operate with the AADB’s inquiry but added that it was prepared to “vigorously defend” its work on Cattles.
The AADB has wide-ranging powers of sanction should it find failings on the part of an accountant. At the lowest level is a simple reprimand but it can also levy unlimited fines and further hit individuals and firms by withdrawing licences and excluding them from relevant professional bodies. Deloitte is the other member of the “big four” firms being investigated, in its case for work on MG Rover. The other two companies are Ernst & Young and KPMG.
Several so-called “second tier” firms are also under investigation, including BDO Stoy Heyward for its work on the failed tour operator XL Leisure. RSM Robson Rhodes, now part of Grant Thornton, is being investigated over its work on iSoft, the software company involved in the NHS IT upgrade. The AADB is also looking at Mazars work on First Quench Retail, the group behind off-licence chains Threshers, Wine Rack and The Local.
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