Yahoo Finance PwC accused of ‘deeply flawed’ audit in legal row with Lucky Strike maker
PwC has been accused of “deeply flawed” audit work in a multimillion-pound legal row with the maker of Lucky Strike cigarettes.
British American Tobacco (BAT) on Monday claimed that PwC failed to exercise reasonable care and skill when auditing the accounts of Windward Prospects, a paper factory spun off from the tobacco group more than two decades ago.
The claim being brought by BAT against the Big Four accountancy firm is part of a professional negligence trial in a long-running wrangle over the costs of cleaning up polluted rivers in the US.
Windward Prospects was among the paper mills accused of pumping toxic chemicals used in carbonless paper – often used for invoices and receipts – into rivers into Wisconsin and Michigan in the US.
BAT maintained that Windward Prospects (formerly AWA) had previously agreed to cover the multibillion-dollar damages and clean-up claims related to these polluted rivers.
However, BAT argued that Windward Prospects instead handed out €578m (£488m) in two dividend payments to its former parent company, Sequana, which should have been earmarked for the clean-up costs.
As a result of these payments, Windward was unable to meet its indemnity obligations to BAT and allegedly left the tobacco giant hundreds of millions out of pocket.
BAT claimed that Windward would not have made these substantial payments had PwC not misstated the papermaker’s 2007 and 2008 results.
In written arguments submitted to the High Court, BAT said: “Neither of these very substantial dividends would have been paid had PwC carried out competent audits. The extent to which AWA’s directors relied and depended on PwC’s clean bill of health in declaring those dividends is apparent from the evidence.”
BAT claimed that the High Court will “look in vain for evidence” that PwC ensured that Windward had properly calculated its liabilities under the river scandal.
It claimed that PwC’s records from the audits are “replete with uncompleted checklists, cursory observations, and unthinking recitations of pieces of information provided by management and not subjected to any proper testing or verification”.
PwC denied acting negligently and argued that Windward’s audited accounts were “true and fair”.
In written arguments, PwC said: “In order to mount a challenge against the truth and fairness of the accounts, BTI [BAT’s subsidiary] has constructed a case based on expert evidence which is infected by hindsight at every stage and assumptions which are unsound as a matter of fact.”
BAT, one of the world’s largest cigarette makers, ended its 17-year auditing relationship with PwC in 2015 as a result of the legal dispute.
