Thursday, October 28, 2021

PwC faces lawsuit for failing to spot alleged fraud at racing car dealer

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PwC has been sued by the administrators of JD Classics, a racing car dealership, for allegedly failing to to spot fraud resulting in losses of over £41m.

The UK’s biggest accounting firm was accused by administrators from Alvarez & Marsal of being negligent in their handling of accounts between 2016 and 2017 according to the Financial Times.

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The administrators said the auditing giant’s failures cost the racing car dealer more than £41, as the dealerships’s incorrect finances allowed it to build up costly liabilities.

The news comes as the audit profession has come under scrutiny for failing to raise red flags ahead of company collapses in the UK.

The Big Four auditors are increasingly reported on in relation to failed audits. EY faces a potential legal claim for over £1bn for its audits of NMC Health, the FTSE 100 hospital operator that collapsed in a suspected multibillion dollar fraud. Meanwhile Carillion liquidators have secured funding for a £250m lawsuit against KPMG over its audits of the collapsed government contractor.

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JD Classics administrators claimed that despite their identification of a “real risk of fraud”, PwC failed to detect that the true state of the business was being concealed, resulting in it negligently issuing unqualified audit opinions of the 2016 and 2017 accounts.

The lawsuit alleged that revenue and profit were overstated because the dealership had recognised sales that had not occurred in the same financial year and the company’s stock was inflated because it included assets that it did not own.

The company’s assets were, as a result, overstated by £43.6m, the administrators said.

PwC said: “We believe the claim is without merit and will be vigorously defending it.” The auditor is expected to file their defence in due course.

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