Deloitte defends Freedom Foods audit as board calls in rival PwC to probe finances

The board of Freedom Foods has called in PwC to help complete an investigation as Deloitte defends its audit.

Former Freedom Foods CEO Rory McLeod at the Shepparton processing plant in Victoria. Picture: Stuart McEvoy.

Deloitte is standing by its audit of Freedom Foods despite its board identifying a series of accounting discrepancies and the departures of the company’s chief executive and chief financial officer.

The professional services giant defended its audit of Freedom Foods’ accounts as the company’s board called in rival accounting firm PwC and Ashurst to complete an investigation into its ­finances.

The Australian understands the board asked Deloitte, which has been Freedom Foods’ auditor for more than a decade, to run through its accounts a second time. It is believed Deloitte delivered the same result as its initial audit.

A Deloitte spokesman told The Australian: “We stand by our audit. Beyond that we do not comment on client matters.”

Last Wednesday Freedom Foods entered a 14-day trading halt after it announced its long-serving chief executive Rory Mac­Leod was on forced leave. Mr MacLeod resigned from the company on Monday night.

His departure followed chairman Perry Gunner fronting a tense investor call on Thursday during which he declared the company was not “experiencing its finest hour” and revised stock writedowns from $25m to $35m, taking total 2019-20 inventory losses to $60m.

Investors asked Mr Gunner how so much of the company’s stock — such as UHT milk and allergen-free cereals — could become worthless.

“I don‘t understand how this hasn’t been picked up beforehand. I’m sorry to say it sounds like you’ve been asleep at the wheel,” one investor told Mr Gunner.

Mr Gunner replied: “Expert directors can only act on the information they’re provided with.

“We were only provided with the information of the additional $35m today. We were provided obviously with the information about $25m at our last board meeting in May after which we gave an update.

“We trusted what they (management) said that was an audited figure.”

Freedom Foods produces a range of allergen-free breakfast cereals and dairy products.

Dairy billionaire Tony Perich has a holding of about 54 per cent in the company.

The investigation into its finances comes almost a year after the Australian Securities & Investments Commission called for an overhaul of the cosy relationship between auditors and the biggest companies in Australia.

The Australian is not suggesting that there was anything wrong with the quality of Deloitte’s audit of Freedom Foods, only reporting that the company’s board is investigating its finances and recent developments in the sector.

ASIC found 50 per cent of audit reviews­ had “significant deficien­cie­s”. Moreover, documents released under Freedom of Information laws showed that ASIC warned senior Treasury officials in mid-2017 that it believed the reasons behind the poor audit quality results were “cultural” and caused “primarily (by) the lack of auditor independence because companies pay auditors”, which opened the groups up to conflicts of interest.

The release of the documents came ahead of a Senate inquiry to scrutinise major accounting firms KPMG, Ernst & Young, PwC and Deloitte over conflicts of interest, poor audit quality, which could help trigger corporate collapses, and the tight-knit relationship between government and the big four accounting giants.

The big four accounting firms blamed the sector’s poor audit quality findings partly on unskilled and biased ASIC investigators. Former Deloitte CEO Cindy Hook told the government “a number of (ASIC’s) reviewers lack practical audit experience”, “a number did not reach senior levels in the profession”, “some do not have appropriate industry experience”, and “some have limited knowledge of controls-based auditing”.

The Senate inquiry was scheduled to release its report on March 1 but last month extended that date until December 2.