The report declares PwC’s 1998 audit of TransTec ‘inadequate’ going on to detail specific criticisms of the auditor’s approach.
Stinging criticism is also levelled at Richard Carr, the chartered accountant hired to take over from Robinson as chief executive.
On PwC the report says; ‘The audit of TransTec provides an example of auditors who lacked scepticism and who were willing to accept the representations of TransTec’s management and who put those representations to directors without getting to the facts.’
Three particular complaints are identified by the inspectors. Firstly, PwC auditors put too much reliance on ‘management representations’ when it came to the accounting treatment of £11m that had to be paid to Ford Motor Company for breach of contract.
Secondly, the inspectors felt auditors from the Big Four firm ‘were unwilling to challenge management’ when it came the ‘overtly aggressive’ treatment of at least £23m of reported assets.
Lastly, PwC were said to have used ‘vague language’ when communicating to TransTec’s audit committee and as a result displayed a ‘regrettable lack of principle’.
PwC today rejected the criticisms emphatically. A statement from the firm said: ‘PricewaterhouseCoopers profoundly disagrees with and rejects the criticisms of it made by the Inspectors. These criticisms do not reflect a proper construction of auditing standards nor are they supported by the evidence available to the Inspectors.’
PwC commissioned Deloitte to examine the inspectors’ report on the firm’s behalf.
PwC revealed that Deloitte concluded: ‘We fail to see how the allegations of deficiencies in PricewaterhouseCoopers audit work can be sustained. In our view the criticisms made by the Inspectors are misconceived and misdirected and should be withdrawn.’
Special criticism was saved for TransTec chief executive Richard Carr who, the inspectors concluded, was not up to the job. They found him ‘rigid’ and ‘inflexible’ and ‘lacked integrity’. In the view of the inspectors he ‘did not fulfil the duties of honesty and good faith’.
Much of the inspectors work centered on the way TransTec accounted for an £11m settlement with Ford for breach of contract.
Of that money, £5.8m was booked as a write-off of tooling while a further £1.9m was capitalised in the accounts as tooling. The remaining £3.6m of compensation to Ford was ‘not provided for at all’.
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