TransTec: a sorry, sorry tale
As regulators and accountants across the City received their biked copy of the DTI's report on TransTec last Friday, they braced themselves for some grisly reading.
The report was damning and while many newspapers concentrated on the politics that saw Labour’s trade ministers turn on their former paymaster general Geoffrey Robinson, at the heart of the report was the verdict that accountants were the most culpable.
TransTec started life as a union of companies controlled by Robert Maxwell and the report bore many similarities to the department’s scathing criticism a couple of years ago of the little-missed media mogul.
Chief executive Richard Carr was accused of telling the board ‘that everything was under control’ and running the engineering conglomerate by behaving like ‘an investment banker’. By 1999 Carr and finance director Bill Jeffrey had resigned and TransTec was in receivership.
The DTI accuses Carr, Jeffrey and group financial controller Richard Parking of deceiving the board, the auditors, the shareholders and the stock market.
It’s a sorry, sorry tale. But despite being ‘deceived’, auditors from PricewaterhouseCoopers failed to do their job, too. They did not confront management, they did not know what they were really talking about and should have said that they did not have corroborating evidence when they didn’t. ‘Auditing by conversation with executives and representations requested from directors is not auditing,’ says the DTI.
The report concludes: ‘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.’ The DTI wants to see auditor training improved.
As the profession fights to win over sceptics that only a liability cap could save the big firms from exiting the audit market and prevent another Andersen collapse, the report could not have been worse timed.
PwC has protested its innocence, and points to a report from Deloitte that reaches different conclusions. Auditors need to think long and hard about the DTI’s conclusions. It may be a perception issue but calls for greater protection don’t play well in this climate.
But the worst could be yet to come. The accountants’ Joint Disciplinary Scheme is among those poring over the DTI report and weighing up what action to take. That will play on ministers’ minds too as they consider what action to take now.
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