One of Malta’s top auditing firms will be investigated by the Accountancy Board after a court judgement found it was “negligent” when compiling a report on the defunct Price Club in 2000.
According to the court, Deloitte & Touche gave an optimistic picture of the supermarket chain’s business and in no manner did it indicate financial difficulties. The company went bust a few months later, leaving about €20 million in debts and many suppliers in dire straits.
The judgement quotes court referee John Zarb stating that experts in the field would normally have found out much earlier that Price Club was on its way to collapse.
Contacted by this newspaper, Accountancy Board chairman Charles Rapa admitted that the judgement had serious implications and that the issue would be further investigated. The Accountancy Board acts as the profession’s regulator and is responsible for issuing warrants and licences to auditing firms.
“We have not yet seen the judgement but we will study it in detail,” he said. “The Deloitte issue will be discussed at the next board meeting in January and we will start carrying out the necessary investigations,” Mr Rapa said.
He would not make any further comments at this stage insisting that the board would first have to study the court judgement thoroughly.
The Finance Ministry, which is responsible for the board, did not reply to questions.
The accountancy profession is taking the judgement very seriously.
According to Maria Micallef, president of the Institute of Accountants, the judgement is a first and cast doubts on “the whole profession”.
“While it’s true that the judgement deals with Deloitte’s work, it has implications for all of us,” she said. “The issue will definitely be discussed at our council meeting and we will see how to proceed and deal with this,” she said.
So far, Deloitte has not issued any official communication on the judgement. When contacted, CEO Paul Mercieca expressed concern over the court decision saying the firm was still deliberating on its next steps.
The judgement cast doubts on the whole profession
“We have only just received a copy of the court judgement and will clearly need to study it in more detail,” Mr Micallef said. “Obviously, we are disappointed at the findings of negligence,” he said.
According to Mr Micallef, Deloitte has not yet received any communication with the Accountancy Board over the issue.
The judgement followed action filed in 2001 by one of Price Club’s suppliers, Valle del Miele Ltd, which claimed the auditing firm’s report did not reflect the chain’s precarious financial position at the time.
As a result, Valle del Miele, a chicken processing company, had decided to continue supplying the Price Club and was owed more than €350,000 when the chain went bankrupt.
Although the court ruled that Deloitte was negligent in its work, it said the firm was not responsible for any damages as Valle del Miele should have engaged its own experts to examine Price Club’s situation and not rely on the chain’s own auditors.
Four years ago, Price Club’s directors were found guilty of wrongful trading when they continued to do business in full knowledge that the Price Club was going under. They were held personally liable for the €20 million debts.