By Edmund Tadros and Ayesha de Kretser
PwC appears to have ignored risk signals and failed to exercise sufficient professional scepticism during its long tenure auditing Corporate Travel Management, an accounting expert says.
Professor Gary Monroe said PwC should have asked management tougher questions and obtained direct confirmation from the British authorities, given the complexity of the travel company’s government contracts and the scale of the overcharging at the time.
The criticism comes after Corporate Travel last week admitted that a forensic audit of its finances concluded it may have overcharged the British government and other UK customers by as much as £128 million ($242 million). That figure eclipsed the original £80 million estimate first flagged by the company.
The company also disclosed last week that its board had withheld news – in consultation with PwC – of a £54.6 million overcharge in 2022 after concluding the British government would not recoup all the funds.
Corporate Travel said documentation related to this decision “may not, in fact, be authentic”.
Monroe, a specialist in audit judgement and risk assessment at the University of NSW, said the figures involved “sound pretty material”, given the company posted a profit of almost $170 million in 2022-23.
“PwC should have required the overcharging matter to be disclosed in their company accounts before issuing an unqualified opinion,” he said.
The lack of disclosure about the UK issues in PwC’s audit report came despite the firm consistently identifying revenue recognition as a key audit matter in successive annual reports.
“From an audit perspective, the UK government contracts should have been identified as a high-risk area. These were unusual transactions, not the normal types of transactions they traded in. The volume of bookings and the magnitude of the revenue and the fact that these were highly complex contracts made them a high-risk audit area.”
Monroe said the £54.6 million overcharge in 2022 also was significant enough to require further action by PwC.
“The auditor seems to have not been professionally sceptical enough,” said Monroe.
“It was claimed that the client didn’t care about the money and didn’t want the money back. I can’t believe that that would be true for that much money, and to take that at face value just seems that you’re not being sceptical enough. You’d need some proof, right?”
Investors have also raised concerns about Corporate Travel’s disclosures to the market when the issue was detected.
‘Disappointing’ announcement
Wilson Asset Management portfolio manager Oscar Oberg labelled last week’s announcement “100 per cent disappointing”.
“You would think that £54.6 million was material enough to disclose to the market in 2022,” said Oberg.
PwC audited Corporate Travel company from 2010 until it handed over to rival Deloitte last financial year.
Deloitte almost immediately raised the alarm that Corporate Travel did not have sufficient evidence to support how it had booked large British customer contracts in its accounts.
This led to the company engaging yet another auditing firm, KPMG, to conduct a review of its UK operations.
Monroe said Deloitte’s concerns about the accounts were another “flag that PwC wasn’t being sceptical enough”.
“Perhaps PwC had become a little bit too familiar with the client and too complacent and accepting, which is why you should have auditor rotation,” he said.
A spokeswoman for PwC said the firm would not comment on client matters because of confidentiality.
“We have not been made aware of any information beyond what has been released by CTM through ASX announcements,” she said.
Auditor needs ‘reasonable assurance’
People briefed on the matter say Deloitte’s auditors found issues they felt should have been picked up by PwC during the previous 14 years. PwC is likely to argue that it is not up to auditors to detect fraud.
“They’re right that you’re not necessarily responsible for detection of fraud,” said Monroe.
“But you are responsible for obtaining reasonable assurance that the financial statements taken as a whole are free from material misstatement, whether caused by fraud or error.
“So I don’t think that’s a particularly good defence.”
Corporate Travel shares have been suspended since August.
Four months later, in December, Forager Funds Management and Wilson Asset Management told clients they had marked down the value of their small positions in Corporate Travel by 50 per cent.
Then in February, Jamie Pherous, who founded Corporate Travel and led it to the ASX in 2010 as its chief executive, stepped down.
The company last week said it continued to target restating its accounts and relisting on the ASX by June 30.
Licensed by Copyright Agency. You must not copy this work without permission.
