Feltex 'failed' by its accountants, court told

Former Feltex chairman Tim Saunders outside the Auckland District Court. Photo / Dean Purcell

Feltex had been "failed" by the accounting firm that reviewed its financial statements, defence lawyer Paul Davison QC told the Auckland District Court today.

Ernst & Young partner Stuart Painter had made an incorrect assumption that the breach of the carpet-maker's loan agreement with ANZ had been waived during an interim review of Feltex's financial statements, the defence said.

Davison said had Painter and his firm undertaken its role with professional vigour and adopted a degree of "reviewer's scepticism" , then it was "a matter they should have picked up on".

Feltex's five directors are in court defending charges the company's half-year accounts to December 31, 2005 did not disclose it was in breach of its loan agreement with ANZ.

The defence said it relied on Ernst & Young's advice that its financial statements complied with accounting standards.

Painter has denied any wrongdoing, saying the firm did it all it could with the information it had.

"I do not believe we failed in any aspect of the review process."

The defence said Ernst & Young had failed to reclassify the bank debt as current and had "let them (the directors) down badly".

Neither Painter or his team contacted the bank to see if they had issued a waiver, the defence said.

Painter said it would be "very unusual" for an accounting firm to contact a bank in such circumstances, even for something as serious as a breach of banking covenants.

However in hindsight it would have been better to have written confirmation as evidence, Painter said.

Painter said a review provided "limited assurance", not complete assurance.

The case continues.