PwC fined £5.6m by the Financial Reporting Council for improper checking of Babcock results
- PwC was criticized for regularly failing to challenge Babcock’s management
- The company was originally fined £7.5 million, but it was reduced by a quarter
- Two other former audit partners have received hefty reprimands and fines
PwC has been fined £5.6 million by Britain’s accounting regulator for failures related to its work with defense and aerospace firm Babcock International.
The Financial Reporting Council said it had found breaches in “every area” it had investigated of PwC’s audit work on Babcock’s 2017 financial results and the 2018 accounts of Babcock and its Devonport Royal Dockyard subsidiary.
The regulator slammed the company for regularly failing to challenge Babcock’s management, and for a “lack of competence, care or diligence” over its inability to meet basic audit obligations.
Reprimanded: PwC fined £5.6m over errors related to audit of defense firm Babcock International and its subsidiary Devonport Royal Dockyard
On one occasion, an audit team received a €640 million (£570 million) contract written in French, but none of them possessed the required language skills to understand it or sought a translation of the contract, the regulator said.
In another case, audit evidence relating to a sensitive government contract was forged when no evidence was found that auditors had received or read a 30-year contract worth £3 billion.
PwC was initially fined £7.5 million, but it was reduced by a quarter following the company’s admission of guilt.
Two other former audit partners, Nicholas Campbell Lambert and Heather Ancient, have been given heavy reprimands and fines of £150,000 and £48,750 respectively.
PwC said in a statement: “We regret that the work in question was not of the standard required and that we are demanding of ourselves.”
‘In the years that followed, we invested heavily and continuously in strengthening the quality of audits, which is reflected in improved inspection results. We are focused on consistently delivering high quality audits.”
The latest fine represents the fourth time the FRC has penalized the ‘Big Four’ audit group for its audits of London-listed companies over the past year.
In August, PwC was fined £2.5m for failing to sufficiently question BT Group’s 2017 results after fraud was committed at the telecom giant’s Italian division.
Two months earlier it was sanctioned twice in one day for failures during the audit of the annual results of construction companies Kier Group and Galliford Try.
Claudia Mortimore, deputy executive adviser to the FRC, said the Babcock audits fell “far short of the standards expected of statutory auditors.”
She added: “Of particular concern is the lack of skepticism applied and the failure to adhere to some basic audit requirements.”
Mortimore also said that PwC had “conducted effective self-assessments in four of the areas examined and provided exceptional cooperation in this regard.”
“However, this has not led to a further reduction in sanctions as it has been countered by examples of errors, omissions and delays in providing material for the investigation, as well as providing some unclear or inaccurate answers.”
Investigations are still ongoing into PwC’s audits of Babcock’s 2019 and 2020 financial statements and accounts of collapsed shopping center owner Intu Properties, Wyelands Bank, Eddie Stobart Logistics and London Capital & Finance.