PwC slapped with multi-million fine for audit failures at FTSE 100 firm Babcock
Big Four giant PwC and a former partner have been fined over £5.5m for the audit failures of London-listed engineering giant Babcock International.
The Financial Reporting Council (FRC) issued disciplinary action against the firm and its audit partner, John Waters, following numerous serious audit breaches during the financial years 2019 and 2020 audits of the group that handles critical UK government and defence contracts.
Waters resigned from PwC in January 2023 after more than 35 years at the firm.
The regulator found PwC and Waters failed to critically challenge management’s accounting choices or respond appropriately to risks of material misstatement, and failed to obtain adequate audit verification across multiple core pillars.
PwC and the partner admitted to extensive compliance failures across both audit years, culminating in material restatements in Babcock’s 2021 financial statements to correct prior errors.
As a result, the FRC issued PwC with a £5.5m fine, reduced to £3.2m following cooperation, admissions and early disposal from the firm. PwC is also ordered to cover the full investigative costs of the executive counsel.
Waters received a financial sanction of £59,062, reduced from £100,000.
The firm’s second fine over Babcock’s audits
In March 2023, in a separate probe, PwC and two of its former partners were fined a combined sum of almost £8m for repeated failures related to Babcock.
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 at the time that, in auditing Babcock, PwC failed to obtain a 30-year contract that accounted for around £77m of the defence company’s 2018 revenues.
Commenting on the fine issued on Thursday, the FRC’s Penrose Foss said: “The quality of these audits fell short of the standards expected of statutory auditors.”
“The FRC acknowledges that the audit engagement partner assumed his role in FY2019 in challenging circumstances. In such circumstances, however, the firm and the audit engagement partner should together have ensured that those challenges were appropriately addressed, and the audit work performed in accordance with applicable standards,” she added.
Earlier this week, Dame Jayne-Anne Gadhia was named by the government as the next Chair of the accounting watchdog, set to take over in September.
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