The report concluded that the PricewaterCoopers’ audit of the company in 1998 was ‘inadequate’, but reserved scathing criticism for the three accountants who ran the company.
Special attention was given to chief executive Richard Carr who was blamed along with finance director Bill Jeffrey for failing to disclose to the board an £11m settlement with Ford Motor Company for breach of contract. Richard Parkin, who replaced Jeffrey as FD in March 1999, was also criticised for failing ?to alert the board or auditors to the nature of the Ford debit notes?.
The JDS is considering the report as part of its own investigation into both auditors and directors. It expects to reach a decision very soon.
However, once again auditors are in trouble. The DTI reached its conclusions after interviewing Jonathan Lander, the partner in charge of the TransTec audit, and Brian Woods-Scawen, the review partner.
The inspectors concluded: ‘The failures in PwC’s audit of TransTec were not failures of technical competence but rather a failure of will ð a lack of robustness and strength of purpose.’
Coopers & Lybrand won the audit contract from what was then BDO Binder Hamlyn in October 1992.
But it was the critical audit for 1998 on which the inspectors focused. They settled on three broad areas.
Firstly, in connection with accounting for the Ford settlement the auditors ‘placed such undue reliance on management representations that they failed to obtain sufficient reliable audit evidence to support the treatment of the transaction in the accounts’.
Of the £11m agreed with Ford, £5.8m was booked as a write-off of tooling, while £1.9m was capitalised as tooling. The remaining £3.6m was not provided for at all.
Secondly the auditors were ‘unwilling to challenge management’ and as a result ‘failed to form an independent view on the 1998 accounts’.
Lastly, they used ‘vague language’ in their dealing with TransTec’s audit committee.
PwC has rejected the conclusions, saying: ‘PwC profoundly disagrees with and rejects the criticisms of it. These criticisms do not reflect a proper construction of auditing standards, nor are they supported by the evidence available to the inspectors.’
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