PwC Australia has admitted negligence but not
liability in a multi-million dollar case brought against the audit
firm and owner of former client Centro, according to Australian
media.

The admitted flaws relate to a $1.1 billion
short-term loan that had been miss-classified as long term, causing
the then second largest shopping centre company in Australia to
nearly collapse. Centro only revealed its difficulties in
refinancing this debt in December 2007.

The class action against Centro and PwC is in
its seventh week and was filed by two sets of shareholders who are
suing the group and PwC about A$200m ($209m) in damages.

The Centro case is one of the largest
accounting failures in Australian corporate history.

According to the The Australian, PwC
admitted before Federal Court judge Michelle Gordon the firm failed
to take reasonable care over the 2007 accounts, but denied
liability to shareholders on the ground it did not want to deceive
investors and it was not PwC but audit partner Stephen Cougle who
made inaccurate representations of Centro’s flawed 2006-07
audit.

In its written submission, PwC said Cougle
asked the right questions when he learnt the $1.1 billion
short-term loan had been wrongly classed as long term but “got the
wrong answer” from his own staff.

Sydney Morning Herald reports that
PwC claimed Cougle had a rational basis for giving Centro’s
accounts the green light but information provided by PwC staff was
wrong.

At the heart of this case is the line between
the liability the firm takes and the liability of the audit partner
that signed off on the accounts. PwC has indicated liability should
rest with Cougle due to the oversight of PwC staff working on the
engagement.

When contacted by the International
Accounting Bulletin
, PwC could not comment on the trial but
reiterated a statement it issued prior to the court proceedings
that said the claims were “misconceived”.

“We say any loss alleged by shareholders was
because Centro did not disclose publicly or to its auditor relevant
information about the status of its financing arrangements,” a
spokesperson for the firm said at the beginning of March.

PwC’s alleged admissions are limited to the
period after 6 September 2007 when the audit finished but it does
not admit it failed in any way before then, The Australian
reported

In a separate landmark case in June 2011, a
federal court judge ruled in favour of the corporate regulator ASIC
in a case against the board of the property group, stating that it
could not simply delegate to the auditor essential duties when it
came to reading financial statements.