I wrote this post about a month ago for Forbes.com and my column, “Accounting Watchdog” on a very important legal decision related to a real estate company, Centro, in Australia. Centro’s auditors were PwC. Given all the traffic this site is getting because of my interview for Australian National Radio’s program “Background Briefing,” I thought I would post it here as well.
A judge’s dramatic ruling against directors and officers in the Centro “true and fair” disclosures case, has left the business community in Australia shaking in its boots.
In a landmark decision, the Federal Court has found that executives and directors of troubled property group Centro breached the Corporations Act by signing off on financial reports that failed to disclose billions of dollars of short-term debt.
The ruling in Melbourne today comes as a significant win for the Australian Securities and Investments Commission (ASIC), which poured considerable resources into the case following a string of high-profile losses.
In the United States, many wonder, now openly and loudly, why we haven’t seen more executives and boards called to account for the financial crisis. Passionate arguments – and dismissive ones – have been made on both sides. But no one argues that, compared to previous crises like post-Enron and the savings and loan scandals of the 1990’s, the number of significant prosecutions for fraud, accounting manipulation, and malpractice by third party advisors like lawyers and auditors is practically nil.
Members of company boards of directors, above all, seem bullet-proof.
The principle of fiduciary duty governs directors under state corporate law. A company can incorporate in any state, but Delaware leads the pack in the number of incorporations and, as such, as developed the most case law regarding duties of directors. Under federal law, the focus of directors’ responsibilities is on disclosure of material information – completely and accurately.
Missing and misstated disclosures were the central issues in the Centro case.
The business community in Australia is divided over the judge’s decision. On one side, investors applaud Judge Middleton. He held the Centro directors and officers responsible for misstatements and omissions of material information. On the other side are executives and directors – many of them also investors – who claim the judge’s decision is unreasonable to expect what, they say, a director cannot reasonably be expected to do…
For the rest of the post, please go to, “PwC Will Answer For Centro But Judge Slams Directors First.”