AWA’s auditors were Deloitte, Haskins & Sells. Deloittes had no letter of appointment but were involved twice in the period in question, once to audit the accounts to 30 June 1986, and once to confirm the six months profits to 31 December 1986. AWA sued Deloittes for confirming in both exercises that forward currency transactions were highly profitable when in fact they were heavily loss-making. Koval was not hedging but speculating and disguising the losses he incurred by, inter alia, taking loans to roll over positions that he had not “booked” to AWA. In particular, when discussing the audit with the AWA board in September 1986 Daniels, the audit partner, failed to report that: (1) there were no proper records of currency transactions to June 1986 and the records thereafter became worse as a computer system was being installed; (2) there was no proper separation of dealing and settlement functions allowing Koval to check (and in fact disguise) his own activities; and (3) Koval had taken out “wrong way round positions”, i.e., he was speculating not hedging. This was further compounded in March 1987 when Daniels was specifically challenged by the board about the unexpectedly high profits from currency transactions in the six months profits figures. He said, “There is nothing funny about the figures”, even though he had just received a further report on the above failings from one of his junior auditors.

Following the appointment of Wickham, some hidden loans came to light and in May 1987 a A$3.8 million loss for the month of March was reported. The board demanded a full report from Wickham. By June 1987 it was clear that AWA had an uncovered position