The accounting firms PwC and KPMG have been drawn deeper into the scandal over collapsed Brazilian retailer Americanas after the publication of internal correspondence showing how the company hid billions of dollars of debt.
Americanas’ new management told the Financial Times that it was seeking “context” to explain correspondence between former executives and the two audit firms, which was uncovered by an independent investigation into almost $4bn of accounting irregularities that sent the company into bankruptcy in January.
The retailer last week said for the first time that fraud lay at the heart of the collapse. While it pointed the finger at former executives, the development also raised the stakes for the company’s advisers.
A congressional inquiry was shown evidence on Tuesday that KPMG, which audited the accounts from 2016 to mid-2019, redrafted an internal report so that the final version played down concerns about the company’s financial controls.
And PwC, which was the auditor before and after KPMG’s stint in the role, gave Americanas executives advice in 2016 on how to describe the company’s complicated supply chain finance arrangements. These are alleged to have been used to hide its indebtedness, and the advice obscured key features, Americanas’ current chief executive, Leonardo Coelho, told legislators.
Americanas’ collapse has shocked corporate Brazil and threatens to cast a pall over investment in the country. The century-old retailer is a staple of the Brazilian high street whose largest shareholders — the billionaires Jorge Paulo Lemann, Marcel Telles and Carlos Alberto Sicupira — are among the country’s most famous businessmen.
The three men, who have said they had no knowledge of the irregularities, are helping orchestrate a financial rescue by injecting new cash.
The collapse has led to recriminations between investors and creditors and the company’s banks and advisers, and between current and former management. Americanas said last week that an independent investigation launched by the company found evidence of fake advertising contracts as well as unapproved uses of supply chain financing.
Coelho told congress that former executives hid financial irregularities from the board of directors. The advice given by PwC and the changes made by KPMG helped them do so, according to his testimony.
In successive drafts of a report on Americanas’ 2016 accounts, KPMG removed a reference to “significant deficiencies” in the company’s financial reporting and ultimately agreed that the matters needed to be addressed only by management, not at board level, according to slides presented by Coelho.
He also showed an email from a PwC partner in 2016 in which she suggested alternative wording to describe supply chain financing arrangements, which he said obscured whether they should be counted as debt.
The partner “was indicating how to write a text in a final audit letter where the topic . . . was not clear to all involved,” Coelho said.
Americanas said that it would take appropriate legal action against all those responsible for the fraud.
“Regarding audit firms, the analyses are preliminary and need more context due to reports [having been] produced from falsified documents,” Americanas said. “Americanas reiterates that investigations are in progress by authorities and reaffirms that the company is the most interested in clarifying facts.”
Thaynara Rocha, a lawyer at Daniel Gerber Advogados, which is representing a group of minority shareholders, said the two audit firms had the “means of investigating inconsistencies, as well as having a duty to disclose them to the national financial system and capital market”.
“If these frauds were easily detected by [the independent investigation] in a very short period of time, why were they not detected by PwC and KPMG?” she said.
KPMG said it stood by its audit opinions on Americanas, “which were prepared in accordance with professional standards”. PwC declined to comment either from Brazil or at its global headquarters.
Americanas’ trio of billionaire shareholders and creditors have been hashing out the terms of a financial rescue that would involve them injecting up to R$12bn (US$2.5bn), while creditors accept a debt-for-equity swap, according to local reports.
The company has also said it was selling some businesses, including its fruit and vegetable business, and considering options for others, such as its financing arm.
Additional reporting by Beatriz Langella
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