Grant Thornton is the auditor of VEH Essen Hotel Group (VEH). VEH entered into a loan agreement with Barclays Bank. Barclays Bank has been relied on the auditor report in considering to provide the loan facility to VEH. VEH then became insolvent and were unable to pay back the loan.

Barclays thereafter brought a claim against the defendant auditors (GT) for alleged negligence in their production, for the Company, of non-statutory audit reports provided to third parties, which had been sent to Barclays. In particular, the reports failed to identify the fraud of two employees of the Company, who had allegedly deliberately misled GT about the true sales and expenses position the company. The Court held that the disclaimers included in the reports were sufficient to preclude GT owing a duty of care to Barclays. However, the Court considered that there were, nevertheless, some circumstances in which auditors could owe a duty to third parties – for example, if reports provided to the third parties did not contain disclaimers. 

This is another positive decision for accountants covering a very important area.

PricewaterhouseCoopers (PwC) is the audit firm that had been appointed by the Colonial Bank to audit its account. Colonial Bank has put its trust towards PwC to make sure that their account and transaction is free from fraud or any miscellaneous bad attempt towards its company either from third party or within the company.

PwC are being charged and sued due to unable to find and discover the massive fraud that occur within the company.  Colonial Bank bought $1 billion of worthless assets that were concocted by rogue Taylor, Bean & Whitaker Mortgage (TBW) executives which is the subsidiary of Colonial Bank. The loan occur in this transaction were never happened.

PwC claims that sophisticated frauds are difficult to detect, and audits are no guarantee of exposure. However, those claims seem suspicious, given their intimate understanding of Colonial Bank and the size of involves monies, it would have been almost impossible to miss the fraud as massive as that. Colonial Bank believe that the auditors are actually aiding it.

This case is the prove that the auditors are not taking a proper step in detecting irregularities.

The directors of a company shall ensure that the financial statements of the company and, if the company is a holding company for which consolidated financial statements are required, the consolidated financial statements of the company are made out in accordance with the applicable approved accounting standards.

(2) A company, the directors and managers of a company shall cause appropriate entries to be made in the accounting and other records within sixty days of the completion of the transactions to which the entries relate.

S266. Powers and duties of Auditors.

(3) An auditor of a company shall have a duty to form an opinion to each of the following matters:

(a) whether he has obtained all the information and explanations that he required. nd the auditor shall state in his report the particulars of any deficiency, failure or shortcoming in respect of any matter referred to in this subsection.

(4) An auditor of a company has a right of access at all reasonable times to the accounting and other records, including registers of the company and is entitled to require from any officer of the company and any auditor of a related company such information and explanations as he desired for the purpose of audit. 

(5) An auditor of a holding company for which consolidated financial statements are required:

a)      has a right of access at all reasonable times to the accounting and other records including registers, of any subsidiary, if necessary; and

b)      is entitled to require from any officer or auditor of any subsidiary included in the consolidated financial statements, at the expense of the holding company, such information and explanations in relation to the affairs of such subsidiaries included in the consolidated financial statements. 

 (12) An officer of a corporation who refuses or fails without lawful excuse to allow an auditor of the corporation, or an auditor of a corporation who refuses or fails without lawful excuse to allow an auditor of its holding company – 

(a) to have access to any accounting and other records, including registers of the corporation in his custody or control

Section 266 (3) provides that an auditor shall have a duty to form an opinion to the following matters, whether:

·         he has obtained all the information and explanations that he required

·          proper accounting and other records have been kept by the company as required

·         returns received from branch offices are adequate; and

·         procedures and methods used to calculate amount in consolidated accounts were appropriate

and the auditor shall state any deficiency, failure or shortcoming in his report

 

     Ernst and Young (EY) is one of the audit firm that involved in auditing 1MDB. When they had been requested some of the documents were not produced, they refused and decided to sign off as 1MDB’s auditor. Then, appointed in their place was KPMG, who approved the accounts for the years 2010, 2011 and 2012 ending March 31. At first, they have signed off an unqualified audit report. When it comes to the fair value of investment, the auditor (KPMG) was asking for more information and some details verified, however they were terminated too as an auditor for 1MDB. KPMG wanted to issue qualified audit report to the public, unfortunately in December 2013, Deloitte had been took over the KPMG and approved both 2013 and 2014 accounts. However, the Department of Justice has found that massive theft involving billions of dollars occurred at 1MDB. The Malaysia Securities Commission reprimand and fined 2.2 million ringgits (US$535,000) for breaching linked to the 1MDB global financial scandal that saw billions siphoned out of state coffers. For the years 2015 to 2018, there is no account have been filed, which makes it four years in all. Parker Randall was allowed to access 1MDB accounts seized by the police. Lastly, when the Malaysian Institute of Accountant (MIA) want to investigate both KPMG and Deloitte, they said that the account that they audited and approved cannot be relied upon due to subsequent development. In this case we can conclude too much fraudulent occurred in 1MDB which involved significant figure.