PwC faces legal action over forensic audit of motor dealer
Posted Thursday, March 22 2012 at 19:54
PricewaterhouseCoopers’ forensic audit of troubled motor dealer CMC has attracted legal action in what promises to be a ground-breaking suit for Kenyan accountants.
In the suit that goes to the heart of PwC’s business, Peter Muthoka — the largest shareholder at CMC — is questioning the integrity of the audit firm, accusing it of multiple offences including failure to comply with generally accepted accounting standards and of making findings based on unreliable and speculative information.
PwC is also accused of publishing and distributing a report containing material falsehoods, expressing false opinions based on third party reviews without interrogating them and of failing to report that CMC’s dealings with Andy Forwarders was on contractual and consensual terms.
The suit – the first to be filed against a Kenyan audit firm over the outcome of a forensic investigation – is expected to open up the accounting profession to public scrutiny and to define the boundaries of their liability for damages suffered by the subjects of their investigations.
Mr Muthoka, who is represented by Nairobi lawyer Ochieng Oduol, wants the court to declare the forensic audit null and void because it was not authorised by the CMC board of directors and is in violation of the motor dealer’s memorandum and articles of association.
PwC, through its lawyer, Kimani Kiragu, of Hamilton and Mathews has denied all the charges, arguing that it compiled the report within the scope of materials that CMC made available.
The challenge to PwC and its head of forensic audit, Martin Whitehead, muddies the waters for CMC chief executive Bill Lay and his chairman, Joel Kibe, who have sued Mr Muthoka for Sh1.5 billion that Andy Forwarders allegedly over-invoiced the motor dealer since 2006.
It erects a new hurdle for their suit, which is based on PwC’s audit report whose integrity is now in question and its author under legal scrutiny.
Though PwC’s subsidiaries have fought many legal battles around the globe, including class action suits over its failure to detect falsehoods in information provided for auditing purposes, this is the first time that the Kenyan arm is facing a suit over its findings in a professional assignment.
Mr Muthoka is seeking court orders to invalidate the January 23 forensic report and expunge all unjustified adverse findings, opinions and recommendations made against him on matters affecting the business of CMC Holdings.
On Thursday, Mr Muthoka urged Mr Justice Daniel Musinga to declare that CMC’s September 23, 2011 engagement of the forensic auditor to carry out investigation on matters affecting CMC’s business, was undertaken in violation of the company’s memorandum and articles of association.
The Andy Forwarders chairman is further asking the court to issue a permanent injunction restraining PwC from circulating, publishing further or presenting in any manner the report.
He is also seeking payment for general damages and compensation for breach of duty and negligence in the preparation and presentation of the report.
CMC has sued Mr Muthoka for Sh1.5 billion he is alleged to have defrauded the company through inflated charges by logistics service provider Andy Forwarders.