The consultancy group PwC has been hit with a £7.5m fine over a string of serious breaches while auditing the engineering company Babcock’s accounts, including creating a false record of documents reviewed for a sensitive government contract.
The accounting regulator, the Financial Reporting Council, said breaches were found in “every area” it had investigated in relation to the audit of Babcock’s accounts for 2017 and 2018, with PwC repeatedly failing to either challenge management, gather sufficient evidence to confirm financial statements, or follow basic audit requirements.
The FRC said it signalled a “lack of competence, care or diligence” by PwC, and raised particular concern given that most of Babcock’s business comes from highly sensitive UK government contracts, including with the Ministry of Defence.
In one case, there was no evidence that PwC’s audit team had reviewed a 30-year-contract worth up to £3bn, and in another, the team had failed to scrutinise a €640m (£570m) contract written entirely in French. None of the team spoke French, and there was no evidence PwC tried to translate the documents to confirm the terms of the deal.
PwC’s auditors were also found to have “created a false record” of the audit evidence they had actually gathered in relation to a sensitive government contract.
All together, PwC’s string of failures meant there was a risk that mistakes or misstatements in Babcock’s financial accounts could have been missed.
The FRC’s deputy executive counsel, Claudia Mortimore, 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.”
The penalty that PwC will actually pay has been cut to £5.5m – in part because of the fact that the team admitted some of its failings. However, PwC was been issued with a severe reprimand, ordered to review and change some of its staff training programmes, and declare that the audit reports it signed fell short of reporting requirements.
Mortimore said the package of sanctions was meant to “deter future breaches and encourage improvement by the firm”. PwC could still face further penalties in relation to its work with Babcock, given that the FRC is currently investigating its audits for 2019 and 2020.
PwC said in a statement: “We’re sorry that the work in question was not of the standard required and that we demand of ourselves. In the years since, we have made significant and continuous investment in strengthening audit quality, which has been borne out through improved inspection results. We are focused on ensuring the consistent delivery of high-quality audits.”
• This article was amended on 8 March 2023. An earlier version of the headline and text described PwC as having been fined for “faking evidence”.
