2 Apr 2012

PwC and RSM in legal row over audit work

Lawyers for professional services group RSM Tenon have raised "serious concerns" about the quality of PwC's audit

The firm has been told that RSM Tenon may have the basis for a legal claim against the accountancy giant, according to The Times. PwC has reportedly responded by accusing Tenon of misleading its audit team "through both omission and deliberate misrepresentation."

According to the report, lawyers from Reynolds Porter Chamberlain, who reviewed PwC's work, told Tenon's board: "It is remarkable to see the accounts of a public company [... ] audited by a Big Four firm undermined so comprehensively through pre-acquisition due diligence."

Ian Powell, senior partner at PwC, is understood to have met Adrian Martin, Tenon's chairman, to try to defuse the situation.

RSM Tenon revealed in January its chief executive Andy Raynor and chairman Bob Morton had stepped down amid mounting losses. Raynor was replaced by former PwC partner Chris Merry.

According to The Times the extent of its financial troubles only came to light after Tenon had been approached by a private equity group HgCapital about a potential sale in the in the second half of last year.

HgCapital initially made a 43p a share cash offer, valuing Tenon at £140m. However, it is understood that after bringing in Deloitte to conduct due diligence, the buyer "completely lost confidence in Tenon's historic and current financial statements together with Tenon's ability to forecast its future finances”. A revised offer of 5p per share also fell through.

RSM Tenon’s lawyers have claimed that PwC's failure to uncover errors in Tenon's last full-year accounts contributed to the collapse of the deal. It has said that Tenon may therefore be able to seek damages from its auditor.

In February RSM Tenon revealed an £84m first-half loss after taking a £61m writedown of goodwill. It admitted to "significant errors" in its last full-year accounts. The firm's shares closed on Friday at 8½p, down nearly 90% compared with the start of last year.

PwC was fined a record £1.4m by the NAO in January for failing to report that its client JP Morgan had not properly protected billions of dollars of client money.


Helen Roxburgh