Debt buyer Pioneer Credit is suing its former auditor PricewaterhouseCoopers, alleging negligence, breach of retainer and misleading and deceptive conduct in relation to PwC’s advice about the company’s adoption of the AASB 9 accounting standard. A writ of summons was issued by the Supreme Court of Western Australia on Monday, naming PwC and partners Douglas Craig and Regina Fikkers as defendants. PwC was Pioneer’s auditor from the 2013/14 financial year to 2018/19. AASB 9 took effect from the first reporting period on or after 1 January 2018. Its main feature was a change to the treatment of impairments from an incurred loss approach to an expected loss approach. It also created a more streamlined approach to the classification of financial instruments, reducing the number of classifications to two – amortised cost and fair value. It is this part of the standard that Pioneer’s claim relates to. In a statement to the ASX yesterday, Pioneer said PwC advised it in December 2017 that when it adopted AASB 9 for the reporting period starting 1 July 2018, it could continue to classify and report the value of its purchased debt portfolios at fair value through profit and loss. Pioneer alleges that PwC gave the same opinion in February 2019, when it reviewed Pioneer’s financial report for the six months to December 2018. But then around April 2019, Pioneer claims, PwC advised that the PDPs had to be classified at amortised cost. Pioneer claims the effect of this change was that it breached its financial covenants and sustained losses estimated to be A$27 million. “If Pioneer had been aware from December 2017 that it was required to move to amortised cost, it could, with this knowledge, have conducted and managed its business and finances to avoid breaching its financial covenants,” the company said in its statement. “Pioneer sought PwC’s opinion well in advance of adopting AASB 9 to ensure that Pioneer’s understanding and intended adoption was correct, and to provide it with sufficient time to prepare any critical changes which might arise as a result of the new standard. The proceeding in essence alleges that PwC has failed the company and its shareholders.” At the time of these events, Pioneer had a $100 million senior debt facility with syndicate banks Westpac and Bankwest. The application of amortised cost to more than 900 debt portfolios changed the timing of when earnings were recognised in the accounts. The change explained the fall in earnings from $17.6 million in 2017/18 to $4.3 million in 2018/19. The fall in earnings triggered a breach of the company’s financial covenants under its senior financing facility. When the company released its 2018/19 financial report, it said that events of default had occurred and that it had entered into a standstill agreement with Westpac and Bankwest. The business then struggled because of constraints imposed on financing activity follow the breach. Later that year, Pioneer entered into a scheme implementation agreement with Robin BidCo Pty Ltd and Robin HoldCo Holdings Ltd - both part of private equity investor Carlyle Group. As part of the agreement, Carlyle