PwC fined £7.5m over repeated failures in audit of Babcock International’s accounts
Britain’s accounting watchdog has fined PwC and two of its former partners a combined sum of almost £8m over repeated failures in the firm’s audits of UK defence company Babcock International and its Plymouth dockyard subsidiary.
The UK’s Financial Reporting Council (FRC) hit PwC with a £7.5m fine – discounted to £5.625m for the firm’s compliance – over its repeated failures to properly scrutinize Babcock’s accounts.
The watchdog said PwC repeatedly failed to challenge Babcock’s management in its 2017 and 2018 audits of the company and failed to obtain sufficient evidence to properly carry out its job.
The FRC said that in auditing Babcock International, PwC failed to get hold of a 30-year contract that accounted for around £77m worth of the defence company’s 2018 revenues.
The Big Four auditor also failed to translate a 10-year government contract, written in French, worth €640m – despite the fact no one on PwC’s audit team had sufficient language skills to interpret it properly.
Instead, PwC’s audit team relied entirely on explanations put forward by Babcock’s management in working out what the €640m contract meant, showing a lack of independence in the firm.
PwC’s auditors also failed to challenge Babcock’s management on the achievability of its cost savings forecasts in a £2.6bn contract with the UK’s Ministry of Defence (MoD).
The watchdog also fined PwC audit engagement partner Nicholas Campbell Lambert £200,000 – discounted to £150,000 – over his failures in working on the 2017 and 2018 audits of Babcock’s accounts.
Campbell Lambert is reportedly now working in Deloitte’s Australian practice. PwC declined to comment while Deloitte failed to comment when approached by City PM
PwC audit engagement partner Heather Ancient was fined a further £65,000 – discounted to £48,750 – for failing to properly scrutinize the 2018 accounts of Babcock subsidiary Devonport Royal Dockyard Limited.
A PwC spokesperson said: “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,” the PwC spokespersons said.
The £7.5m fine against PwC comes as the UK’s accounting watchdog has taken a tough stance towards the Britain’s top auditors, in the wake of a series of high-profile scandals involving top companies including Thomas Cook, Carillion, and Patisserie Valerie.
The UK government is currently pushing ahead with plans to overhaul the country’s audit sector, with a view to replacing the FRC with a new, more powerful regulator, called the Audit, Reporting and Governance Authority (ARGA).