PwC fined £6.5m over 'lack of competence' in audit
Accounting giant PwC has been fined £6.5m over its audit of the cloud computing firm Redcentric. The Financial Reporting Council (FRC), which regulates auditors, reduced the fine to £4.55m after PwC admitted its mistakes.
The FRC said some of the breaches were of a “fundamental nature, evidencing a serious lack of competence in conducting the audit work”.
Two partners at PwC were each fined £200,000. Jaskamal Sarai and Arif Ahmad from the firm’s Leeds’ office will each pay £140,000 after co-operating.
PwC apologised and said it had taken “numerous steps to strengthen processes”.
The auditor has run into trouble with its regulator several times in recent years:
- In 2018, it was fined £6.5m for poor auditing of collapsed department store BHS
- In 2017, it was fined £5.1m for a poor audit of failed auditor RSM Tenon Group
- Also in 2017, PwC was fined £5m for misconduct in its audit work for failed maintenance firm Connaught
According to the FRC, Redcentric’s 2016 financial statements were extensively restated, with net assets written down by £15.8m, and £5.3m in pre-tax profits restated to be a £4.2m loss.
The regulator said a number of the breaches related to PwC’s failure to exercise “professional scepticism”.
“Had [scepticism] been applied, it is likely that certain material misstatements would have been detected,” said Claudia Mortimore, deputy executive counsel to the FRC.
“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.”
The auditing sector is under pressure to raise standards after failing to spot warnings signs at the collapsed construction company Carillion.
This has resulted in the Competition and Markets Authority proposing a major shake-up of the industry, as well as the heads of the Big Four accountancy firms appearing in front of MPs on the Business, Energy and Industrial Strategy (Beis) Committee.
This year KPMG was fined £6m and £5m respectively for poor audits. EY and Deloitte have also received significant fines in the past.