PwC slapped with £4.5m fine over ‘lack of competence’ in audit work
Britain’s accounting watchdog has slapped PwC with a £4.55 million fine for failing to challenge management at IT management firm Redcentric, where a £15 million black hole was later uncovered in its books.
The Financial Reporting Council (FRC) handed the Big Four auditing firm the fine after it showed a “serious lack of competence” in its audit work for the firm.
It said that partners at the firm Jaskamal Sarai and Arif Ahmad committed a number of policy breaches relating to their “failure to exercise professional scepticism”.
The two partners were each handed a £140,000 fine each and, alongside the accounting giant, were given a severe reprimand.
The watchdog also called for PwC to supplement its monitoring and support for its Leeds office, where the error took place.
The FRC initially handed the firm a £6.5 million fine, but reduced it due to PwC’s admissions during the investigation process.
Redcentric’s 2016 financial statements were extensively restated, with net assets written down by £15.8 million, and £5.3 million pre-tax profits restated to be a £4.2 million loss.
The fine comes amid increased scrutiny on the Big Four auditors, with MPs calling for sweeping reforms following the high-profile collapse of companies such as Carillion.
Claudia Mortimore, deputy executive counsel to the FRC, said: “The sanctions reflect the seriousness and extent of the breaches. Professional scepticism was lacking in this audit.
“Had it been applied, it is likely that certain material misstatements would have been detected.
“As this is the second final decision notice involving PwC Leeds’ office in recent years, we have mandated that the firm supplements its ongoing monitoring and support for that office, to further improve the quality of audit work in the future.”
PwC apologised that its auditing work fell below its professional standards.
Earlier this month, it announced plans to invest £30 million to drive higher quality in its audits.
A PwC spokesman said: “Since the work in question was completed we have taken numerous steps to strengthen processes.
“Our audit quality action plan has three key areas: additional investment in training, people and technology; further alignment of PwC’s audit business behind audit quality; and a reinforced focus on culture and quality control.”