PwC urged to return Northern Rock fees

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PricewaterhouseCoopers has been urged to give back its audit fees for
Northern Rock work in a bruising grilling before MPs today.

The firm made £1.8m from the bank according to its most recent annual

Head of assurance Richard Sexton and banking partner John Hitchins appeared
before MPs today as the Treasury Select Committee continued to look into the
problems of the Newcastle-based lender.

Sexton was forced to admit that the firm had charged £700,000 for ten
‘comfort letters’ to Northern Rock, and that it was continuing to work on the
sale of the bank, earning more fees.

‘You’ve audited and provided comfort letters for the biggest banking disaster
in 150 years,’ Tory MP Michael Fallon said.

On the subject of the sale work and fees, Sexton said: ‘We have a duty to
prepare prospectus-related documents.’

When quizzed on the firm’s audit of the bank, Sexton provided little clarity,
leaving MPs pledging to pursue the firm further to get more information.

Asked whether the firm should have spotted the imminent problems at Northern
Rock when it conducted its most recent audit, Sexton replied: ‘The audit review
covers the financial statements and it included all relevant information.’

Sexton maintained that the aim of an audit was to ‘provide comfort’ about the
information contained in the financial statements and not to consider the
internal controls or the operational risks.

Panel members repeatedly asked why Northern Rock’s liquidity issues were not
brought to the fore but Sexton shot down any suggestion that this issue should
have come under the umbrella of the audit.

‘The information that was required to be audited was thoroughly audited and
was there for all to see.’

Asked about the non-audit work PwC carried out, he said: ‘We were providing
comfort on securitisation issues at the request of the company.’

The firm has been criticised for earning huge non-audit fees on top of the
audit fees, and in particular for working on areas that were critically involved
in the bank’s problems: securitisation and wholesale funding.

PwC earnt £1.1m for its audit of Northern Rock last year, and £700,000 for
the non-audit work.

further Reading:

slammed for Northern Rock non-audit work

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