Financial Reporting Council imposes sanctions against PwC and two former partners for Babcock audit failings
The sanctions include a fine against PwC for numerous serious breaches of auditing standards
The UK’s Financial Reporting Council (FRC) published on 8 March a final settlement decision notice under the audit enforcement procedure against consulting group PwC and two former audit partners, which imposes sanctions for numerous breaches of the international standards on auditing, amongst others, relating to the statutory audits of Babcock International Group and its subsidiary, Devonport Royal Dockyard Limited.
The sanctions imposed by the FRC include a £7.5 million fine against PwC for numerous serious breaches of the relevant standards, while auditing Babcock’s accounts for the financial years ending 31 March 2017 and 31 March 2018. The fine has been adjusted for aggravating and mitigating factors, and benefited from a 25 per cent discount for admissions and early disposal, which means that the actual financial sanction to be paid is £5,625,000. The FRC has also issued a severe reprimand, an order requiring the review and amendment of certain PwC training programmes, and a declaration that the relevant audit reports signed on behalf of PwC did not satisfy the audit reporting requirements.
The serious breaches identified by the FCR and admitted by the two former audit partners involved in the case include the creation of a false record of documents reviewed for a sensitive UK government contract, and the repeated failure to challenge management, gather sufficient evidence to confirm financial statements, or follow basic audit requirements.
The two former audit partners involved in the case, Nicholas Campell Lambert and Heather Ancient, have also been sanctioned. Mr Campbell Lambert received a £200,000 fine, which was adjusted and discounted for admissions and early disposal, so that the actual amount payable is £150,000. Ms Ancient received a £65,000 fine, which was similarly adjusted and discounted, so a financial sanction of £48,750 is due. They both received a severe reprimand and a declaration that the relevant audit reports that they signed did not satisfy the audit reporting requirements.
Commenting on the enforcement action, Claudia Mortimore, Deputy Executive Counsel of the FRC, said: “The quality of these audits fell far short of the standards expected of statutory auditors. Of particular concern is the lack of scepticism applied and the failures to follow some basic audit requirements. This robust package of sanctions seeks to deter future breaches and encourage improvement by the firm, in circumstances where PwC has now been sanctioned four times since 2019. The financial sanctions have been reduced by 25% to reflect the admissions made and the settlement reached. PwC conducted effective self-reviews into four of the areas under investigation, and in this respect exhibited exceptional cooperation. However, this has not attracted a further discount to sanctions, as it was countered by examples of errors, omissions and delays in providing material to the investigation, as well as the provision of some unclear or inaccurate responses.”