Deloitte 'acquiesced' to misleading financial statements, says watchdog

Deloitte & Touche and its UK chairman, Martin Scicluna, have been slapped with complaints by the accountancy profession's watchdog, which claims the firm "acquiesced" to misleading financial statements made by a client.

Deloitte & Touche and its UK chairman, Martin Scicluna, have been slapped with complaints by the accountancy profession's watchdog, which claims the firm "acquiesced" to misleading financial statements made by a client.

The firm and Mr Scicluna now face a disciplinary tribunal over their auditing of the Capital Corporation, a casino group beset by management and financial problems in the Nineties. Deloitte and Mr Scicluna vigorously contest the complaints, but if the tribunal rules against them, they could receive unlimited fines. Deloitte could also lose its audit licence and Mr Scicluna could be expelled from the profession.

The complaints have came to light only after the Joint Disciplinary Scheme (JDS), which investigates alleged malpractice in the profession, lifted a gagging order on their publication. After a five-year investigation, the JDS decided to lay complaints against Deloitte in February, but the firm won an unprecedented injunction against the JDS barring it from publishing them. The High Court over-turned that injunction yesterday on the grounds that disclosure of the complaints was in the public interest.

The JDS claims Deloitte let Capital make misleading amendments in the casino group's interim results announcement in 1996. According to the JDS, Deloitte was unable to sign off Capital's accounts as "materially correct" because of a number of concerns about its finances, and the auditors recommended Capital disclose this to shareholders. Capital ignored the request and no disclosure was made. As a result, the firm is also under fire from the JDS for failing to resign as auditor at this point. In Capital's results announcement for the full year, Deloitte gave the company a clean bill of financial health.

A former Deloitte partner has already been expelled from the profession for fraud connected to Capital. Stephen Ives was found guilty of fraudulently obtaining a Range Rover from Capital while acting as auditor for the company and manipulating Deloitte's accounts to conceal his actions.

The JDS accuses Mr Scicluna of failing to report Mr Ives to the Institute of Chartered Accountants in England and Wales or failing to ensure a senior partner at Deloitte reported him.

A statement from Deloitte said the JDS complaints were "unsubstantiated and groundless allegations" and that it rejected the body's view that Capital's interim announcement in 1996 contained misleading statements. It said: "It would have been inappropriate to resign as auditors." Deloitte said it did conduct a review of Mr Ives's position in the firm. "But based upon information available at that time, [the firm] did not conclude it was appropriate to report Mr Ives to the Institute. We are astonished that a complaint in respect of this is being directed at Mr Scicluna personally. We believe the Joint Disciplinary Tribunal will not uphold the complaints."