As the FT reports this morning:
Rio Tinto and two former senior executives were hit with US fraud charges, and the miner with a UK penalty, on Tuesday for allegedly trying to hide a multibillion-dollar business failure by inflating the value of coal assets in Mozambique.
In a civil complaint filed in federal court in New York, the Securities and Exchange Commission said that Rio, Tom Albanese, its former chief executive, and Guy Elliott, a former chief financial officer, had ignored proper accounting standards and misled investors in their valuation of coal deposits that the company had purchased for $3.7bn and later sold for just $50m.
As they also note:
In the UK, the company was fined £27.4m over the affair, the largest fine the Financial Conduct Authority has levied on a company for a listing-rules breach.
So, let’ ask the obvious question: where were the auditors?
The allegations largely relate to 2012. The auditors then were PWC, as they are now.
The sums now subject to investigation must be material. So where is the investigation into the audit? I can find no evidence that there is one.
In the very same FT article it says:
“Rio Tinto’s top executives allegedly breached their disclosure obligations and corporate duties by hiding from their board, auditor, and investors the crucial fact that a multibillion-dollar transaction was a failure,” said Stephanie Avakian, co-director of the SEC’s enforcement division.
To avoid a similar black mark on the coal business, the executives hid the problems from the board, audit committee, independent directors and investors, the SEC claimed. In late 2012, they allowed the audit committee to review an estimate of the coal project’s value that had “no basis in reality”, according to the SEC charge.
The basic allegation is that they lied to the auditors. Why should the auditors have picked this up?
From the actual SEC complaint:
Instead, as the project began to suffer one setback after another resulting in the rapid decline of the value of the coal assets, they sought to hide or delay disclosure of the nature and extent of the adverse developments from Rio Tinto’s Board of Directors, Audit Committee, independent auditors, and investors.