20 Jun PwC stung with fine for ‘serious lack of competence’
In a startlingly blunt assessment of PwC’s accounting work for Redcentric, the UK’s auditing watchdog has said the firm exhibited a “lack of competence”, before slapping a fine of more than £4 million on the Big Four member. The Financial Reporting Council was called to investigate after a £20-million black hole was uncovered in Redcentric’s books.
Two individuals from PwC have been stung with fines of £200,000 each in the wake of a two-year accounting scandal. The Partners, Jaskamal Sarai and Arif Ahmad, were given a severe reprimand along with PwC, which also had to publicly declare that its audit reports did not satisfy the relevant requirements. A black hole in the IT firm’s accounts saw Redcentric’s 2016 financial statements extensively restated, with net assets written down by £15.8 million, and £5.3 million in pre-tax profits restated to a £4.2 million loss.
While the fines were since discounted to £140,000 and PwC’s own fine was reduced from £6.5 million to £4.55 million to reflect an early settlement of the case, the news arrives in a climate where public officials are coming under increased pressure to rein in Britain’s largest consulting and accounting firms. Recently this saw PwC’s Big Four rival KPMG declare it would restructure its own auditing business, in a move which seeks to head off calls for the huge firms to be forcibly broken up.
Near the time of the ruling relating to Redcentric, PwC had also taken action of its own to try and take the onus off state intervention. Earlier in June, PwC said it was investing an extra £30 million to focus more quality in audits. In response to its fine for the Redcentric account, PwC said, “Since the work in question was completed we have taken numerous steps to strengthen processes.”
Commenting on this latest failure in auditing, the Financial Reporting Council (FRC) issued a statement in which it pilloried PwC for showing a “serious lack of competence in conducting the statutory audit work.” Claudia Mortimore, Deputy Executive Counsel to the FRC, added that the watchdog’s sanctions reflected the seriousness and extent of the breaches, while arguing professional scepticism had been “lacking in this audit.”
Mortimore explained, “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.”