Para.9.5. “Independence”   / Objectivity  

I cite just two examples of our legitimate professional concern stated to PwC’s lead partner in Jan 2007:

(1) “ The Chair of the Audit Committee Mr William A. Dimma insisted on chairing the “independent forensic investigation” , although he had previously concluded in his own investigation on the same matters on 14 November 2006 that “ I was satisfied (and remain satisfied) that the issues you raised did not (and do not) warrant further steps or remedy. I considered that the issues you raised were not financial or governance issues that were of concern to me as the Chairman of the Audit Committee. They did not, in my view, amount to unethical or unlawful acts on the part of the Company or any of its employees”. Mr Dimma’s mindset and conduct is vividly displayed in his oral evidence on 4 June 2008

Mr Dimma

You’re the aggrieved party , we wanted a totally arms length relationship (but see PwC TOR/ instns in para 2.0)

Mr Little

I saw you in early February at your office.

Mr Dimma

We met in the lobby briefly

Mr Little

I said I wanted to work through it with you

Mr Dimma

I don’t recall, but you might well have said so

(2) despite PwC’s assurances in Jan 2007 at NO stage was I invited by PwC to comment on the factual accuracy of their “Final Draft Report” - their findings of fact”- which was produced some three / four months after the investigation commenced. This stands in stark contrast to the position minuted in a meeting on 3 May 2007, some weeks earlier at the Audit Committee, where it records “The purpose of the meeting was to provide John Tracey with comments regarding factual corrections on the portion of the draft PricewaterhouseCoopers (“PwC”) report he had circulated. The Committee and management (Mr Neill and Mr Dekker present) made a number of comments regarding factual corrections to the portion of the draft report reviewed. “

His oral evidence confirms his mindset/conduct on 4 June 2008.

Mr Little

Was I asked to make amendments about factual accuracy? Vol 8/3002 Sent by independent lawyers working for the Audit Committee. I asked to make comments as I had been advised to do so by Deloitte. I asked if I could be invited to comment on the factual accuracy – it was denied

Mr Dimma

You met with PwC during the investigation

Mr Little

These are specific questions I asked if I could make comments. This opportunity was denied

Mr Dimma

In the view of the Audit Committee, PwC is a reputable audit firm, a first class UK forensic accountancy team, capable of getting all the facts for a sound report. They did so. There was no need for other parties comments

Mr Little

Why allow the Magellan management to comment on that PwC report and not me? It now takes longer for me to bring up factual issues.


You don’t have to. Not sure Mr Dimma can help on factual issues. Try a couple.

Mr Little

Major concerns about A340, C$40m plus on Magellan balance sheet

Mr Dimma

Yes ………………. continued at para 4.4

Given the reliance by MAC on the Final draft PwC report in their public financial statements on 11 May 2007 the UK court Ordered the disclosure of this “draft” report in June 2007. Despite the fact that the Final PwC investigation and report was not completed for a further three months (until late August 2007) we were never invited - though on commonsense and advice from Deloittes LLP and Mr McCreery - we offered on multiple occasions, to comment on the factual accuracy of that Final Draft PwC report. Those requests were all denied.

Furthermore after the Final PwC report in late August 2007 I wrote to Mr Dimma (and Mr Edwards) in Sept.2007 setting out a few illustrative examples on A340 outlining my concerns re “findings of fact”.

My accountant, Mr James McCreery, raised both (1) and (2) of the above issues from the very outset with Mr Tracey - after he had the opportunity to read Mr Dimma’s  14 November 2006 letter to me - when he accompanied me to my interview with PwC in Belfast on 29 January 2007.  Deloittes LLP similarly pointed out both of these concerns directly with me too, enabling us to make further suggestions – which were steadfastly ignored by Mr Dimma and PwC.  Furthermore there was the natural concern and immense pressure on “independence” and “professionalism” which such an assignment can create for client satisfaction/fees and broader business relationships for the claimed “Number 1” global audit firm. Paul Moore’s initial response on “Truth-forget it” is also significant. Indeed it is insightful to see what PwC state on their website regarding their Services –see also Para 9.6.

UPDATED  6 June 2011

UK   Daily Telegraph – 4 May 2011 by Rowena Mason

Article               PwC faces probe over removing client criticism from report

PriceWaterhouseCoopers has been reported to the accounting regulator, after agreeing to remove criticisms about its client from a £1.5m independent report into allegations made by a whistleblower
PriceWaterhouseCoopers has been reported to the accounting regulator, after agreeing to remove criticisms about its client from a £1.5m independent report into allegations made by a whistleblower.
Mr Shannon's intervention comes at a critical time for PwC, since it is under scrutiny over its "independent inquiry" into the Royal Bank of
Scotland's collapse. 

Jim Shannon, MP, has written to the Financial Reporting Council asking them to investigate a report prepared by PwC in 2007.

The MP's intervention comes at a critical time for PwC, since it is under scrutiny over its "independent inquiry" into the Royal Bank of Scotland's collapse. The "big four" - Deloitte, KPMG, PwC and Ernst & Young - have also been criticised by MPs for "dereliction of duty" during the financial crisis.

Mr Shannon's concerns relate to an independent report that PwC was hired to write for Magellan Aerospace Corporation, a Canadian aircraft parts company. PwC's brief was to look into a whistleblower's claims that Magellan's order book had been inflated.

However, criticism of Magellan's "poor" accounting was left out of PwC's final version – at the request of the client's audit committee.

The MP raised concerns on behalf of the whistleblower, Brian Little, the former head of Magellan's UK operations. ..etc “

Later that day Magellan lawyers provided for the first time a copy of the letter from PwC dated 20 June 2007 to Mr Bill Dimma , Chair of the MAC Audit Committee which can be viewed here.   As you can read this PDF document file was extracted on the 1 May 2011 from a computer record.

l have also provided a copy of the A340 Final draft and Final Reports for Section 8  : MAC : Aeronca – Airbus A340 non-recurring costs which are directly relevant to the PwC criticisms in (a) , (c) and (d) in that 20 June 2007 letter from PwC enclosing their Final Report.

“ Financial control within MAC and MALUK in relation to the areas we have examined is poor and needs to be improved; this need is particularly acute given that MAC is a public company. Examples of poor financial control that we identified during our work include:

(a) Accounting adjustments made with insufficient supporting analysis or documentation;

(b) Inadequate understanding or documentation of balance sheet provisions and insufficient documentation of the decision to release certain provisions;

(c) A lack of awareness of the program accounting requirements under either Canadian GAAP or UK GAAP. The accounting rules and guidelines are complex and our impression is that the principles are not well understood throughout all of the finance community within the MAC group;

(d) Poor control over individual projects from an accounting perspective. Project sales volumes, revenues and costs are not reviewed with sufficient frequency or rigour. In particular, EAC calculations require many estimates by management. Our experience with accounting practices and governance in the aerospace industry is that these estimates and key assumptions should be reviewed on at least a quarterly basis.”  

The Magellan lawyers in the UK misled the UK court (or were lied to by their client, Magellan) that the PwC Final report was not produced until late August 2007.  I will be pursuing this vigorously with various parties and the UK Employment Tribunal.

Furthermore I sent an email to Mr Powell on 22 May 2011 in which I put seven questions to establish more of the facts as to how this could have occurred.  My MP, Mr Shannon, also followed this up and I recommend reading the entire email trail.   At Mr Shannon’s request on 30 May 2011 I set out the detailed evidence in an email to Mr Powell, supporting the  retraction of the PwC spokesman comments “as it did not address the accounting matters which PwC were instructed to review”,  as this was simply false.   This can be read as part of the email trail here

Eventually on 3 June 2011 the PwC lawyer Mr Naylor from PwC replied and Mr Shannon MP followed this up in a crucial email personally to Mr Powell, on the 6 June 2011.  I recommend reading that email trail here.

Q9.5A  Do you believe PwC acted to ensure their professional conduct and integrity by taking any actions in the process they followed during that seven month period to ensure their “independence and objectivity”?

Perhaps in reflecting on this Q9.5A, you could consider for example what would  PwC have had to do differently if this “independent forensic investigation” had been chaired by someone else and I had been invited to make the factual comments stated in these ten illustrative examples in Paragraph 9 in June / July 2007 (ADDED 6 JUNE 2011) and how a letter from PwC on 20 June 2007 enclosing a copy of the PwC Final Report eventually has a August 2007 date on the Final Report version finally disclosed to my former solicitors on 29 August 2007.