The Billion Dollar Burp; PwC Cooks Centro Books as Satyam Gulps Ganges Bog Brew

The top 20 Australian companies spent a whopping $239,196,887 for the auditing services of the Big 4 accounting firms in FY 2009/2010. That’s nearly a quarter of a billion dollars, based on our technical calculations. Interestingly, a billion dollars is also the approximate margin by which the PwC Partner in charge of Centro’s 2006-07 audit miscalculated Centro’s debt classifications. Actually, the true extent of the miscalculation was closer to $1.1billion and the margin by which we just misstated it – $100,000,000 – is also roughly equal to PwC’s audit revenue last financial year from the ASX Top 20.

buuuuuuuuurp!!!!!!!

Gosh this Ganges River tap-water is delicious!

PwC in fact earned $127,826,0o0 in audit revenue last year from the ASX Top 20, placing it:

• $58,480,113 ahead of EY, which earned $69,345,887 in audit revenue in FY 09/10 from the ASX Top 20;
• $88,145,000 ahead of KPMG, which earned $39,681,000 in audit revenue in FY 09/10 from the ASX Top 20; and
• $125,482,000 ahead of Deloitte which earned $2,344,000 in audit revenue in FY 09/10 from the ASX Top 20

PwC partner Stephen Cougle, the partner in charge of the relevant Centro audit, attempted to explain his monumental stuff-up to the Federal Court in Melbourne yesterday by claiming that the error had been raised at a ”high level’. He contended that because the mistake had been raised by the Centro accounting manager, Paul Belcher at an important Centro audit committee meeting, the ONE BILLION DOLLAR BLACK HOLE didn’t need to be raised again. This was despite the fact that Mr Cougle conceded that the error had been raised by Mr Belcher (yes, as in “to burp”) in an “undetailed” way.

The Australian Securities and Investments Commission is currently bringing a case against eight Centro directors and officers. According to the SMH, ASIC alleges the Centro directors and officers breached their duties by signing accounts that failed to disclose billions of dollars of short-term debt held by the company.

Under cross-examination, Mr Cougle agreed that as an auditor he had an obligation to draw matters of significance to the board’s attention but he admitted that he had stayed silent about the error. He added:

If Belcher hadn’t burped raised it, I would have raised it. Having raised it, I didn’t need to repeat what he had said.

Mr Cougle conceded that before the accounts had been finalised, PwC staff had received confirmation letters from at least two banks acknowledging that Centro had debts of more than $US500 million that were due within a year – debts on top of the $US1.1 billion. PwC also had not included these facilities as short-term debts in Centro’s accounts.

Meanwhile, another PwC auditing stuff-up of similarly gigantic proportions is currently unfolding in India; the same country where the firm is eagerly siphoning off local jobs. According to WSJ:

India’s Satyam Computer Services Ltd. … [is alleged to have] engaged in “a massive accounting fraud” … overstating its revenue, income and cash balances by more than $1 billion over a five-year span.

Hmmm… 1 billion? That figure sounds familiar. Any guesses who the auditor was?

Affiliates of PricewaterhouseCoopers … audited Satyam’s books. [The audits contained] deficiencies that the regulators said enabled Satyam to conceal its fraud. The PwC affiliates agreed to pay a total of $7.5 million in penalties and will be barred from accepting new U.S. clients for six months. The five firms, which didn’t admit or deny wrongdoing, will also be subject to independent monitoring and must make various changes in their policies and procedures.

Send the Firm Spy your news and views!