Auditor doubles as independent adviser

BY DITA DE BONI

Brewer Lion Nathan's proposal to buy-up the bulk of Montana Group is being independently appraised by the same company that audits Montana's books.

PricewaterhouseCoopers, which has been Montana Group's auditor since 1994, has been asked by Montana's non-executive directors to deliver an appraisal report to shareholders before December 15.

Montana had to obtain a waiver from the Stock Exchange's market surveillance panel to do so. The approval came 24 hours later. Members of the panel were unavailable to comment yesterday.

Lion Nathan has offered between $3.20 and $3.80 a share for Montana stock. Shares in the company closed yesterday up 6c at $3.71.

Barry Neville-White, chairman of the subcommittee of Montana executive directors, said Pricewaterhouse was chosen to appraise Lion's offer because it had plenty of experience with the wine industry. And the company had only two weeks in which to furnish shareholders with a report according to the Stock Exchange's Notice of Pause regulations.

"We went through all possibilities, discussing each one ... There was not a lot of options that would not have had some sort of conflict," Mr Neville-White said last night. "But the choice of Pricewaterhouse was absolutely the right decision, there is no conflict there."

Roger France, of PricewaterhouseCoopers, said it was "preposterous" to suggest any impropriety on the part of Pricewaterhouse in accepting both pieces of work.

He said the only danger would be if Pricewaterhouse was dependent on Montana for its livelihood, which it was not.

"The audit fees as stated in last year's annual report were $243,000, as well as $75,000 for other services - it's not a million-dollar assignment. Montana is a valued client but it's really a tiny proportion of Pricewaterhouse's business in New Zealand."

Moreover, Mr France said, the audit and appraisal teams were in separate buildings. Pricewaterhouse had to disclose all its relationships with Montana to the Stock Exchange's surveillance panel, which came to its conclusion "easily and properly" he said.

But University of Canterbury senior lecturer in accountancy Alan Robb says it is important that an independent valuation be seen to be independent from those who prepared or those who audited the financial statements.

He says in large professional firms it is believed to be possible to separate the partners and staff who are the valuers from the partners and staff who are the auditors through the creation of "Chinese Walls."

"I am sure that all large accounting practices know and observe this now."

It would have been preferable for the independent directors to have commissioned their report from a firm which had no other association with Montana, he said.

Just two weeks ago, America's "big five" accountancy firms managed to foil an effort by that nation's Securities and Exchange Commission to prohibit consulting and auditing services from operating under the same roof.