Auditors take eyes off the property ball

THE AUDITORS of collapsed property investment companies failed investors, a consumer advocate says.

Auditors take eyes off the property ball

THE AUDITORS of property investment companies caught up in the wave of collapses sweeping the industry have failed mum and dad investors, a leading consumer advocate says.

About $1 billion of investors' money was put at risk after the collapses of debenture schemes Fincorp, Australian Capital Reserve and Bridgecorp last year.

And the future of $770 million poured into a retail fund run by teetering Gold Coast financier MFS is uncertain, with the company remaining suspended from the stock exchange.

Consumer Action Law Centre chief executive Carolyn Bond said some auditors had failed to notice that companies have gone broke.

"If a company is operating while insolvent, there's a question why this isn't picked up by auditors,'' she said.

Auditors have come under scrutiny in several high-profile company collapses or near collapses over the past year.

MFS's 2007 accounts, issued in September, received a clean bill of health from auditor KMPG, who met with the company four times over the year.

Those accounts showed total debt of about $707 million.

But a debt blowout to $1.69 billion, revealed in January, has forced the sale of tourism arm Stella to private equity predator CVC Asia Pacific at a knock-down price of $409 million in cash.

A KPMG spokeswoman said the company did not comment about clients.

Another company with audit question-marks is stricken shopping centre operator Centro, which is currently negotiating the sale of its $2.6 billion Centro Australia Wholesale Fund to help meet the demands of creditors due $3.9 billion by Friday.

Last month Centro ordered a review of debt classification after discovering more of its debt may be current than was disclosed in its 2007 accounts, audited by accountancy giant PriceWaterhouse Coopers.

PWC's role in the $200 million collapse of debenture company Fincorp in March last year drew fire from new Australian Securities and Investments Commission boss Tony D'Aloisio.

In late May Mr D'Aloisio told the Senate Standing Committee on Economics that Fincorp's auditors had signed off on the company's loan book as unimpaired.

Disgruntled Fincorp investors are believed to be considering mounting a class action against PWC and the debenture scheme's trustees, Sandhurst.

But PWC is on the other side of the dispute in the case of $300 million property investment flop Australian Capital Reserve, which went broke in May.

As administrator of the failed group, it has put together a $5 million war chest to fund possible legal action against parties associated with ACR, including auditors Moore Stephens.

A PWC spokeswoman said the firm did not comment on clients.

Extra protection for retail investors is to be considered at ASIC's Summer School, to be held next week.

A panel including Ms Bond and ASIC chief economist Alex Erskine will discuss what lessons can be learned from the wave of collapses that has swept the property industry.

Australian Competition and Consumer Commission director of public relations Lin Enright said regulation of auditors was a matter for ASIC.

An ASIC spokeswoman declined to comment.