BAT sues PwC over pollution scandal

03 Mar 2015


After breaking up with its auditors PwC, British American Tobacco has taken audit firm PwC to court over a potential $1-billion US environmental damages bill, The Telegraph reported.

This comes as yet another embarrassment for the Big Four auditing firm, which is facing accusations by the Public Accounts Committee that it promoted tax avoidance ''on an industrial scale''.

The Financial Reporting Council is also investigating PwC's accountants over the company's audit of one of its biggest clients – Tesco, after a whistleblower's revelation that profits had been over-inflated for at least three years.

BAT is looking to avoid a legal tangle from pumping of toxic chemicals into the Fox River Wisconsin, US.

The chemicals were used in carbon-less copy paper used on contracts where writing is transferred to several copies of the same document.

According to legal documents the clean-up costs, projected at $827 million, with a potential natural resources damage bill of a further $382 million. According to the courts NCR, a New York-listed electronics firm, which previously owned paper mills along the river, was responsible.

BAT acquired an NCR subsidiary – Appleton Papers Division – in 1978 and could be liable for some part of the bill.

Meanwhile, The Independent said that after PwC completed BAT's audit for 2014 financial accounts, it would not be seeking re-appointment for the following year.

According to BAT, KPMG, Ernst & Young and Deloitte would be the remaining "Big Four" accountancy firms competing to win the audit role for the £69-billion company.

The 17-year relationship between BAT and PwC soured after a turning point for the accountancy industry with the introduction of UK and EU rules stating that listed companies and banks would be required to invite quotations for audit contracts at least once a decade.

Around 20 per cent of FTSE-100 companies called for tenders for their audit contracts last year.

For PwC, the BAT loss follows the termination of its 20-year relationship with grocer Sainsbury, which moved to EY.

Last year, the UK's second biggest bank, Barclays also severed its relationship with PwC. The firm has also lost London Stock Exchange account to rival EY but gained a contract with drinks giant Diageo.

Despite the enforced turnover of auditing roles, the "Big Four" accountancy firms had continued to pick up the majority of new contracts as they were the only ones able to service large, multinational companies.

Interserve, the support services group, had so far been the only group to depart from the established practice and hire second-tier firm Grant Thornton to replace Deloitte last year.

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