The Centro case
The case has of the recent past generated a lot of criticism from the general public, media and the corporate community. The case had involved the Centro group against the ASIC securities in which the Centro company was being sued for breach of contract in which the directors failed in their financial reporting responsibility. The PWC company was joined in the suit due to it being the external audit of the Centro company and had the responsibility of disclosure of the financial situations of the Centro company.
The PWC company was the external audit of the Centro firm that had the obligation of performing the audit of the firm with regard to specific laws of financial statements. The Centro company therefore relied on the Pwc auditors to give unbiased and independent audit report of the company. The financial information of the Centro company was reliable to be audited by the PWC and therefore free these statements from obvious errors and misstatements. In case of errors the audit was supposed to crucially correct and make a thorough appraisal of the information (Association of Corporate Counsel, 2012).
The company would have been sued on the basis of negligence of duty. The PWC audit had been be stored with the obligation of through auditing of the financial statements before presenting it to the directors. An obligation that they neglected to perform therefore they were liable to litigate the Centro company for negligence. The audit was supposed to have been more keen on the classification of the debt between non-current and current obligations. The audit firm on the other hand would argue that the misstatement in the financial statements was not the only factor that contributed to the downfall of the Centro company, but refinancing problem to which was the error on the part of Centro (Kaptein, 1998). The audit firm would have been found guilty on the basis of contributory negligence.
Implications of the case
The case case mainly revolved on the failure of the Centro company to billions of debt money as short term in the financial information. The case therefore implies that the directors have a responsibility to perform during the auditing process. They directors need to have a thorough knowledge and skills and apply them in the financial statements and not to solely rely on the audit information given. The auditors too are required to be independent and thorough in meeting their responsibility of auditing without which they will face legal action that will taint the reputation of the audit firm.
The message to the future auditors is clear that the through understanding and scrutiny of the financial statements required. On the other hand the case lifts the scrutiny and obligation of the auditors to a more robust level that the auditors might find it hard to practice. The case is to be a judicial precedent on matters relating to the complexity of the financial statement (Kaptein, 2007). The other implication of the case is that the fact that a company has a committee of auditors both internal and external doesn’t mean that the directors should refrain from performing their financial obligations. This implies that the directors should take their responsibility of receiving audit report and reporting it seriously and personally. Finally the case also raises a new issue of whether the audit experts should be given full auditing responsibility or share with the directors.
Association of Corporate Counsel (2012). The Centro experience – twelve months later. Boston: Globe Business Publishing Ltd.
Kaptein, M. (1998). Ethics Management: Auditing and Developing the Ethical Content of Organizations. New Jersey: Springer.
Kaptein, M. (2007). The Six Principles of Managing with Integrity. New Jersey: Springer.
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