Feltex case raises audit questions, says Minister

(L to R) Feltex Directors John Hagen, Peter Thomas (CEO), Tim Saunders (Chairman), Peter David Hunter and John Feeney. Photo / Sarah Ivey

Yesterday's court decision to acquit failed carpet company Feltex's five directors of Financial Reporting Act charges raises questions about the advice the board received from auditors, Commerce Minister Simon Power says.

Feltex's directors successfully argued that although they signed off on accounts that did not disclose the fact the company in breach of conditions around a A$100 million bank loan or that the loan was on call, they believed the statements were in order before they endorsed them.

Judge Jan Doogue said the directors were entitled to rely on the advice from auditors Ernst and Young that the accounts complied with accounting standards.

This morning, Power said he "noted with interest the reliance the judge put on the third party specialist advice" and confirmed he was speaking about Ernst and Young.

The National Distribution Union (NDU) which represented more than 700 workers who lost their jobs when the company failed in 2006, said with Feltex's directors being acquitted, "then the spotlight must be turned on the auditors Ernst & Young, who allegedly checked the information provided by the company".

"This once again raises the question about who audits the auditors," NDU general secretary Robert Reid said.

The Government is currently considering an independent regulatory regime for auditors who are present have a self regulation model. The new regime would see the yet to be established Financial Markets Authority take responsibility for maintaining standards in the industry.

Power wouldn't comment on whether the Feltex decision may have implications for other cases against directors currently underway.

While the case has thrown a spotlight onto the quality of corporate governance in this country, Power said it was too early to tell what the effect of the decision would be on investor confidence generally.

"I think we'll just wait and see how things settle down from now."