PwC slapped with £5.6m fine by Financial Reporting Council for improper auditing of Babcock results
- PwC was criticised for regularly failing to challenge Babcock’s management
- The firm was originally handed a £7.5m fine, but this was reduced by a quarter
- Two other former audit partners have been given severe reprimands and fines
PwC has received a £5.6million fine from the UK’s accounting regulator for failures regarding its work with defence and aerospace firm Babcock International.
The Financial Reporting Council said it had uncovered breaches in ‘every area’ it examined of PwC’s auditing work on Babcock’s 2017 financial results, and the 2018 accounts of Babcock and its Devonport Royal Dockyard subsidiary.
The regulator blasted the company for regularly failing to challenge Babcock’s management, and for a ‘lack of competence, care or diligence’ over its inability to abide by basic auditing obligations.
Reprimanded: PwC has been fined £5.6million for failures regarding the auditing of defence firm Babcock International and its Devonport Royal Dockyard subsidiary
On one occasion, an audit team received a €640million (£570 million) contract written in French but none of them possessed the required language skills to understand it or sought a translation of the agreement, according to the regulator.
In another instance, audit evidence regarding a sensitive government contract was falsified, while no evidence was found that auditors had received or read a 30-year contract worth a potential £3billion.
PwC was originally handed a £7.5million fine, but this was reduced by a quarter following the firm’s admission of guilt.
Two other former audit partners, Nicholas Campbell Lambert and Heather Ancient, have been given severe reprimands and fines of £150,000 and £48,750, respectively.
PwC said in a statement: ‘We’re sorry that the work in question was not of the standard required and that we demand of ourselves.’
‘In the years since, we have made significant and continuous investment in strengthening audit quality, which has been borne out through improved inspection results. We are focused on ensuring the consistent delivery of high-quality audits.’
The latest fine represents the fourth time the FRC has penalised the ‘Big Four’ accounting group over its audits of London-listed companies in the past year.
In August, PwC was handed a £2.5million fine for not sufficiently challenging BT Group’s 2017 results after a fraud was perpetrated at the telecoms giant’s Italian division.
Two months previously, it was sanctioned twice in one day for failures while auditing the annual results of construction businesses Kier Group and Galliford Try.
Claudia Mortimore, the FRC’s Deputy Executive Counsel, said the Babcock audits ‘fell far short of the standards expected of statutory auditors’.
She added: ‘Of particular concern is the lack of scepticism applied and the failures to follow some basic audit requirements.’
Mortimore also said that PwC had ‘conducted effective self-reviews into four of the areas under investigation, and in this respect exhibited exceptional cooperation’.
‘However, this has not attracted a further discount to sanctions, as it was countered by examples of errors, omissions and delays in providing material to the investigation, as well as the provision of some unclear or inaccurate responses.’
Probes are still ongoing into PwC’s audits of Babcock’s 2019 and 2020 financial statements and accounts belonging to collapsed shopping centre owner Intu Properties, Wyelands Bank, Eddie Stobart Logistics, and London Capital & Finance.