Former Harris Scarfe auditors sued for accounting incompetence

By Matthew Henry

ADELAIDE: The former-auditors of electrical retailer Harris Scarfe –  PricewaterhouseCoopers (PwC) and Ernst & Young – are being sued for a total of $238 million over allegations that incompetent accounting concealed the imminent collapse of Harris Scarfe in 2001.

According to newspaper reports published today, Harris Scarfe’s principal lender at the time, ANZ Bank, and the retailer’s administrator, Ferrier Hodgson, have argued that audits conducted by the accounting firms in the lead up to the collapse should have uncovered manipulation of Harris Scarfe’s accounts, which concealed the financial difficulties of the company.

The court action, which is taking place in the Supreme Court of South Australia, relates to an earlier incarnation of Harris Scarfe which entered into voluntary administration in April 2001 with $160 million in debts.

Harris Scarfe is today operated by new owners.

According to a report in the Australian Financial Review today, QC representing the claimants, Dick Wittington, has told the court that the auditors failed to detect “widespread and systematic fraud and irregular accounting in the books and records of Harris Scarfe”.

PwC and Ernst & Young have denied the allegations.

Ernst & Young were auditors of Harris Scarfe from 1988 to 1997, while PwC were auditors from 1997 until 2001.

Ferrier Hodgson is claiming $123 million in damages and $42 million in interest, while ANZ is claiming $55 million in damages and $18 million in interest.