There was a brief mention of the latest news on Aero Inventory in the recently issued ShareSoc Informer Newsletter, but here are a few more details.
False accounts are a common problem in AIM companies (Aero Inventory and Globo are just two examples apart from the recent case of Redcentric). Let us hope the auditors of Redcentric (PWC) take note of the recent record fine imposed on Deloittes of £4 million in relation to their audit of Aero Inventory, plus £2.3 million in costs.
These events were back in 2008 and previous years when the reported inventory held by the company, and its valuation, was subsequently shown to be exceedingly dubious. In reality the totals reported were a complete fiction. The company went into administration causing investors massive losses. Aero Inventory was an AIM company but it was one of the largest ones at the time.
There are a number of questions that arise here:
- Why has it taken so long for the authorities to bring somebody to account for the audit failings at the company? It’s now 8 years since the company went into administration and it took 4 years for the FRC to even announce a formal complaint was being pursued in respect of the audit. It’s surely a reminder that the Financial Conduct Authority (FCA), the Financial Reporting Council (FRC) and the BEIS Department of the Government are often slow and ineffective in pursuing failings in listed companies.
- Why did the Administrators not sue the Auditors? They generally have little interest in doing so, particularly when there is a risk of not winning such a case or where the amount recoverable in proportion to the claim might be low. Also suing auditors is not easy in the UK because of the contracts the auditors have with the company and because they can often simply claim they were misled by the directors.
- Why did the shareholders not sue the auditors? Because the Caparo legal judgement makes it impossible to do so – this was a decision that said the shareholders have no contract with the auditors who are only responsible to the company, thus overturning previously acknowledged law. The only way shareholders can do so is via a “derivative” action via the Administrators where any claim won would revert to the company (i.e. the Administrators). Note also that such an action is now probably time barred by the years since the problem arose which shows how delays in investigation thwart such claims.
However if readers suffered from the events at Aero Inventory, you may care to contact David Stredder at ShareSoc as he is keen to raise awareness of these problems more widely. Please use the ShareSoc Contact Page here: http://www.sharesoc.org/contact.html to send a note marked for his attention.