SCF auditor fined, censured for being out of his depth
By Paul McBeth
Nov. 25 (BusinessDesk) - The last auditor for South Canterbury Finance, who gave it a clear bill of health, has been fined and censured by his professional peers for lacking the skill to investigate such a large and complicated business.
The New Zealand Institute of Chartered Accountants disciplinary tribunal imposed a $38,000 fine plus GST and public censure for Byron Pearson, a director of Ashburton-based Woodnorth Myers & Co., over his failure to identify some of the lender’s more questionable transactions in the firm’s report for the six months ended Dec. 31, 2008.
“The member lacked the required depth of experience and expertise of auditing in the finance industry, and the professional scepticism, to undertake an audit of the nature and complexity of South Canterbury Finance,” the tribunal said in its determination. “This case involves a widely known public issuer, South Canterbury Finance, and involves issues of public accountability, and the standing and reputation of the profession and the institute.”
The tribunal said Pearson accepting assertions by SCF management that no collective provisioning was needed and whether the total of misstatements relating to potential provisions on individual loans was material.
It claimed he failed to document his conclusions on hedging asset values and whether swap transactions were between related parties, which could have breached the firm’s trust deed. Pearson was also accused of not taking due diligence and care in approving the financial statements.
Pearson pleaded guilty to all charges, and said he was unsuccessful in getting help on the audit with a second partner reviewer. The tribunal accepted his assurance that he had no intention of auditing a financial institution in the future.
He was also banned from auditing an entity that raises money from the public for five years. Several unnamed existing clients were exempted from the ban on the condition his work would be reviewed.
The next audit by Woodnorth Myers flagged a fundamental uncertainty over SCF’s future as a going concern after it had been downgraded to a sub-investment grade rating. The small auditor was later dumped by the lender in favour of Ernst & Young, one of the big four accounting firms.
SCF collapsed at the end of August after a protracted bid to keep the firm alive failed to bring on new investors.
The failure sparked a call on the government’s retail deposit guarantee, which saw Finance Minister Bill English immediately pay $1.775 billion for the Crown to take the role as sole creditor.