Americanas: audit may lose license for 20 years – 06/14/2023 – Market

The alleged participation of auditing firms PwC and KPMG in making it difficult to discover the fraud on Americanas’ balance sheet, if proven, could result in severe punishment for those involved and change the sector’s operating model in the country.

In testimony at the CPI (Parliamentary Commission of Inquiry) that investigates the retailer’s accounting fraud, the CEO of Americanas, Leonardo Coelho Pereira, said on Tuesday (13) that there are indications of participation by PwC and KPMG in the scheme.

Tax and business lawyer at Martins Cardozo Advogados Associados, Hugo Nakashoji states that the objective of the audit is not only to evaluate the financial statements of companies, but also to inform the market of their economic and financial reality with the highest degree of transparency possible, even because this assessment can directly influence the investor’s decision to buy or sell shares in the audited company.

Nakashoji adds that, in 2021, the CVM (Comissão de Valores Mobiliários) issued Resolution No. 23, which regulates the activity of independent auditing within the scope of the securities market.

The regulation deals with the duties and responsibilities of auditors, as well as the penalties they may incur in the event of carrying out a fraudulent audit, which can range from the application of a simple warning to disqualification from activities for 20 years, depending on the specific case, says The specialist.

“In any case, it is necessary, first of all, to verify whether and how the audit firm hired by Americanas contributed to the fraudulent scheme”, says the lawyer.

A professor at FGV Ebape (Brazilian School of Public and Business Administration at the Getúlio Vargas Foundation), Augusto Sales says that it is natural to expect a loss of customers on the part of audits, since no company will want to have its image associated with a scandal of the proportion that the episode of Americanas took. “The greatest asset these companies have is their reputation. If they lose their reputation for any reason, they certainly lose customers and credibility”, says Sales.

“It is very likely that distrust in relation to auditing companies will increase and it is also likely that the price of the auditing service will increase, since the risk of the activity as a whole has also increased”, says André Moura, professor of accounting and finance at FGV EAESP (São Paulo Business Administration School of the Getulio Vargas Foundation).

Moura also claims that it is likely that the shareholders who felt aggrieved by the fraud involving Americanas will trigger the audits in court in search of compensation for the losses.

He recalls that PwC has already been the target of shareholders seeking compensation for the performance of the audit with the reinsurer IRB, which also found itself in the middle of a scandal in 2020 for making up the balance sheet numbers. “More lawsuits should come to PwC from Americanas shareholders, confirming the information on the company’s participation.”

A source who preferred not to be identified says that it was strange that, on the same day that the company released a statement to the market admitting the fraud, the main executive at the head of the company took to the CPI information that was not included in the document, about the possible participation of auditing companies in the fraud.

The additional information released by the executive at the CPI, without having been previously informed to the market, could be configured as an irregularity, says this source, adding that, if the participation of audits is proven, the fact could cause an important rearrangement of the sector in the market Brazilian market, since they are among the largest in the area, along with EY (Ernst & Young) and Deloitte.

“If there is any evidence that PwC and KPMG had any involvement, even if it is just to make information difficult, we may be seeing an Arthur Andersen again”, says Marcello Marin, master in corporate governance and financial director of Spot Finance.

He mentions the audit firm that was among the largest in the market on a global scale and was dragged down in the early 2000s by the problems involving Enron, then one of the largest energy companies in the United States, which manipulated information on profitability and profitability to hide your debts.

At the time, credit rating agencies, investment banks and the SEC itself (the US Securities and Exchange Commission) were accused of negligence. Andersen was accused of destroying documents and barred from auditing.

“If the accusations are proven, PwC and KPMG could go down the same path and have a lot of difficulties staying in the market”, says Marin.

PwC said it does not comment on customer issues due to confidentiality and professional secrecy rules. In a note sent to Folha on Tuesday, KPMG said that “for reasons of confidentiality clauses and rules of the profession, it is prevented from expressing itself on cases involving clients or former clients of the firm”.