PWC has been hit with a £2.3m fine by the accountancy watchdog over its audits of the financial statements of Cattles and Welcome Financial Services Limited for the year ended 31 December 2007.
The FRC ordered PwC to pay £3.5m – reduced to £2,3m after mitigation and a settlement discount – and issued the firm with a severe reprimand. The firm is to pay a £750,000 contribution to the FRC’s costs.
Simon Bradburn, PwC’s then audit engagement partner, was fined £120,000 – reduced to £75,600 – and issued with a severe reprimand.
PwC and Bradburn admitted that their conduct fell significantly short of the standards reasonably to be expected of a member firm and a member respectively in issuing unqualified audit opinions in respect of the 2007 Cattles and Welcome financial statements.
According to the FRC, these were made in circumstances where PwC had insufficient audit evidence as to the adequacy of the loan loss provision and had failed to identify the fact that the impairment policy was not adequately disclosed and that the disclosures in those financial statements were not in compliance with IFRS 7.
Gareth Rees QC, the executive counsel to the FRC, said: “The substantial fines imposed in this case reflect the seriousness of the audit failings in relation to the critical area of impairment provisioning in a sub-prime lender and will send a strong signal to the audit community of the importance of upholding high standards of professional conduct in audit work.
“I welcome PwC’s and Mr Bradburn’s constructive approach which has enabled us to reach this settlement. The admissions of Misconduct have resulted in a significant saving in time and costs and the fines ultimately imposed have been reduced accordingly.”
PwC said: “While the FRC has acknowledged that we had been deliberately misled by third parties, we recognise that certain aspects of this 2007 audit fell short of expected standards. Audit quality is of paramount importance to PwC and the FRC’s annual audit quality assessments have shown a trend of improvement in our work over several years.”
Last year, PwC settled a long-running negligence battle with sub-prime lender Cattles over accusations that allegedly poor auditing of financial statements caused the Yorkshire firm to amass £1.6bn in liabilities. Just days before the case was due to be heard, both parties agreed to settle.
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