Cattles, the struggling subprime lender, has warned its shareholders today that it may have to write down up to £850m due to defaulting borrowers in light of an external investigation being carried out into its alleged accounting scandal. The board said that 'there has been a breakdown of internal controls, which has resulted in the group's impairment policies being applied incorrectly'. An independent forensic investigation, led by Freshfields Bruckhaus Deringer LLP and Deloitte, is looking into how the underprovisioning of bad debtors happened, but the board believes that it 'received inaccurate and/or incomplete information'. Currently, six senior executives including two directors remain suspended while the outcome of the investigation is pending. Jamie Smith, a former restructuring partner at Deloitte, has been appointed as interim finance director of Cattles with immediate effect, subject to the approval of the Financial Services Authority. The report by Deloitte estimates that Cattles will need to make a provision of around £700m in excess of what was originally anticipated with respect to the value of customer loans held as of 31 December 2008. Cattles' board said it is also considering whether to include an additional 'Incurred But Not Reported' provision that would be consistent with the accounting rule IAS 39, Financial Instruments: Recognition and Measurement , which establishes principles for recognising and measuring financial assets, financial liabilities and some contracts to buy or sell non-financial items. 'Based on work carried out to date, the board believes that the adoption of such a policy would result in an IBNR impairment provision of approximately £150m with respect to the value of customer loans held as at 31 December 2008,' it said in a statement.