Collapsed Hastie Group directors, the group's external auditors Deloitte and its advisors on a $160 million equity raising will undoubtedly be waiting for the fallout from a damning report released by the group's administrators identified a number of potential criminal and civil breaches.
In the case of the directors, the administrators PPB Advisory uncovered seven potential breaches of directors duties, which, if proven to be true upon further investigation, could result in fines, a banning or prison sentences.
The problem is few directors who are found guilty of breaches face more than being hit with a wet lettuce.
Directors get paid good money - as do auditors - to represent shareholders and if the preliminary findings of the report are found to be true then ASIC should throw the book at them.
Hastie went belly-up last year after the company discovered $20 million of accounting irregularities. It was put into administration and receivership owing a banking syndicate $529 million and unsecured creditors $390 million.
It isn't the first time a company has faced accounting irregularities and allegations of fraud and it won't be the last.
Indeed, Sims Metals issued a statement to the ASX today advising the market that the value of inventory in its UK business had been materially overstated, possible due to control failures and "potential fraudulent conduct by local and regional plan management".
The problem is few directors who are found guilty of breaches face more than being hit with a wet lettuce. In the case of Centro directors, shame was deemed appropriate punishment, despite the billions of dollars shareholders lost.
An investigation by PPB found that Hastie had serious problems that dated back years, most of which were caused by a culture of burying bad news and directors that did not have "an enquiring mind" as to the reliability of financial statements and overall reporting.
The explosive 98-page report by PPB Advisory states that the directors may have breached their duties and the corporations law by failing to ensure the group's financial statements gave a "true and fair view" of the financial position and performance of the company and offering securities where the disclosure documents contained misleading or deceptive statements.
The report recommends that the company be placed in liquidation and estimates that unsecured creditors will get nothing from the group's assets.
The findings of the report prompted PPB to send a separate report to the corporate regulator ASIC outlining its concerns and recommending further investigation. It also recommends that a liquidator make further investigations into the company's systems.
Part of the role of the administrator is to investigate the cause of company's collapse. In Hastie's case, PPB found that its failure was due to longer term issues than the company's discovery of $20 million of accounting irregularities.
These issues are identified as a poorly implemented acquisition strategy, profitable companies subsidising its loss-making Middle East business "inadequate operational management processes and increased competition, inadequate management reporting systems, including from subsidiary management to the board, inadequate board reporting systems and interrogation of management and financial reports by the board, inadequate control exercised by the board over management."
The report's findings also point the finger at the role of the group's auditors and the advisers involved in the preparation of a prospectus in June 2011 to raise $160 million in equity.
The role of auditors hit the headlines last year when Banksia collapsed and its auditors were found to have signed off on accounts weeks before its $660 million collapse. Other controversies included the role of the auditor in Centro in signing off on billions of dollars of accounting errors.
It follows an audit inspection report from ASIC last year which found that from inspections of 20 auditor firms over the past 18 months, audit quality went backwards.
It is a similar trend facing other countries, which could be due to accounting firms or companies trying to cut costs and therefore becoming mechanical and process driven and pushing some of the work to junior auditors.
PPB said it had identified serious deficiencies with the overall control of the Hastie Group, including: internal systems for project management were inadequate and not to industry standard, financial reporting from subsidiary level up to group level was not uniform and open to manipulation and the board did not appear to "adequately challenge divisional/subsidiary results or forecasts".
It says the audit and risk committee was largely inactive and that compliance with accounting standards appeared to be lacking.
The report is preliminary and requires further investigation by the regulator.
Whatever the case it is a fascinating insight into what goes on inside some companies once the corporate veil is pulled back.