Pitcher Partners dragged into Slater & Gordon class action

Misa HanReporter

Updated Nov 14, 2017 – 3.56pm, first published at 12.45pm

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Pitcher Partners is being sued in a "multi-million dollar" shareholder class action over its auditing work for troubled listed law firm Slater & Gordon.

A statement of claim filed with the Federal Court alleges Pitcher Partners wrongly signed off on financial statements of Slater & Gordon which inflated the law firm's revenue by more than $130 million over the 2012 to 2015 financial years.

The class action alleges Slater & Gordon recognised a percentage of the lawyers' fees for personal injury work and project litigation work as revenue even before the law firm won the case, in breach of accounting standards.

Slater & Gordon went on a debt-fuelled acquisition binge that almost destroyed it. Jessica Shapiro

Pitcher Partners would not comment on the case but pointed to a previous statement where the firm said it was "confident in the work it undertook as [Slater & Gordon's] previous auditor and that it has not caused any loss to [Slater & Gordon's] or its shareholders".

The action comes after former Australian Securities and Investments Commission chairman Greg Medcraft warned that the appalling standing of audit quality in Australia could lead to an Enron-style corporate collapse.

Revenue recognition

Slater & Gordon almost become insolvent after its failed $1.3 billion acquisition of UK professional services business Quindell. A recapitalisation plan to save the law firm means existing shareholders will be nearly wiped out.

The law firm has already settled two class actions run by Maurice Blackburn and Johnson Winter & Slattery for $32.5 million.

The statement of claim alleges Slater & Gordon counted as revenue the fees for personal injury work based on the percentage of the completion of the work, even though most of these cases ran on a "no win - no fee" basis.

According to the court document, the early adoption of the revenue from clients allegedly inflated Slater & Gordon's revenue by $85.8 million in the 2014 financial year and $45.6 million in the 2015 financial year.

Pitcher Partners' Matthew Pringle was one of the partners involved in auditing Slater & Gordon.

The class action also alleges Slater & Gordon used the same flawed approach to calculate the work in progress in four smaller firms it acquired in Australia and in the United Kingdom in the 2015 financial year.

In addition, it is alleged Slater & Gordon should have substantially reduced the goodwill of Quindell in June 30, 2015, because it had been public knowledge since 2008 the UK government was considering personal injury law reforms. However, it wasn't until February 2016 that the law firm announced a $814.2 million writedown of its UK assets.

The Pitcher Partners' accountants who signed off on the Slater & Gordon accounts were Matthew Pringle and Adrian Fitzpatrick. Mr Pringle remains at Pitcher Partners, while Mr Fitzpatrick's LinkedIn profile indicates he has retired from firm.

Pitcher Partners replaced by EY

The class action claims Slater & Gordon's revenue guidance was "materially overstated" as a result of Pitcher Partners signing off on the financial statements in breach of various accounting standards.

Pitcher Partners' Matthew Pringle was one of the partners involved in auditing Slater & Gordon. LinkedIn

It is alleged that if Pitcher Partners had informed Slater & Gordon about the auditing errors, the law firm would have either corrected the errors or published an audit report from Pitcher Partners which highlighted the errors.

Slater & Gordon replaced Pitcher Partners with EY as its new auditor in December 2015.

The class action litigants are seeking compensation, interest and legal costs from the accounting firm.

The action is being run by law firm Johnson Winter & Slattery on behalf of Babscay, an self-managed superannuation fund, and funded by global litigation funder Vannin Capital. It is open to shareholders who bought Slater & Gordon shares between August 2012 and November 2015.