PwC's audit disclaimer causes alarm

Accounting group PricewaterhouseCoopers is coming under fire from its peers for changing the wording of its standard audit report in order to head off

lawsuits from banks and creditors of bankrupt companies.
None of the other “big four” accounting firms has immediate plans to follow PwC's example and adopt wording which make it clear that the audit is carried out for the benefit of shareholders and not third parties.

Deloitte Touche, KPMG and Ernst and Young said they were keeping the question under review. Privately, some senior accountants say the PwC move could be interpreted as an attempt by auditors to protect their backs in the post-Enron environment.

“There has to be a worry that this will be taken the wrong way,” one source said. “It may be seen as devaluing the integrity of the accounts. The timing is not good.”

PwC's move is a response to a ruling in the Scottish courts which opened the way for banks to sue auditors for recovery of loans if a company went bankrupt.

In Royal Bank of Scotland v Bannerman Johnstone Maclay, the bank claimed it had relied on audited accounts in making loans to a company which went to the wall.

Glyn Barker, head of assurance and business advisory services at PwC, said: “As a result of the recent Bannerman judgment, PricewaterhouseCoopers will expressly clarify its responsibilities in its audit opinions to just the members of a company to whom an audit report is addressed. The firm's responsibilities to its clients will remain unaltered: it will have the same duties and liabilities as it has always had.”

Some accountants question PwC's unilateral approach, particularly because the Bannerman case has gone to appeal.

The Institute of Chartered Accountants is carrying out a review. “We alerted our members to the issue last month,” an institute spokesman said. PwC told the institute it was adopting the new-style audit report with immediate effect but the ICA felt unable to intervene in what it saw as a commercial risk management judgment by the firm.

The new audit report includes the words: “We do not in giving this opinion accept or assume responsibility for any other purpose or to any other person to whom this report is shown or into whose hands it may come save where expressly agreed by our prior consent in writing.”

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