PwC has been fined £2.3m by the Financial Reporting Council (FRC) over its auditing of sub-prime lender Cattles’ biggest division, Welcome Financial Services, in 2007.
The FRC carried out a disciplinary case about how PwC and the then audit engagement partner Simon Bradburn mishandled the audit.
The council found that PwC had insufficient audit evidence as to the adequacy of the lender’s loan loss provision and had failed to identify the fact that the impairment policy was not adequately disclosed. Disclosures in those financial statements were also not in compliance with IFRS 7 a financial disclosures instrument.
PwC said: “While the FRC has acknowledged that we had been deliberately misled by third parties, we recognise that certain aspects of this 2007 audit fell short of expected standards.
“Audit quality is of paramount importance to PwC and the FRC’s annual audit quality assessments have shown a trend of improvement in our work over several years.”
The FRC said PwC’s original fine of £3.5m would have been the largest ever if it had not been reduced to £2.3m after a mitigation and settlement discount.
Bradburn was fined £120,000 but also had the amount reduced to £75,600 after mitigation discounts.
One of the FRC’s previous big fines was against another big four firm, Deloitte, in early 2015 for a fine of £3m over its dealings with the collapsed carmaker MG Rover. The fine was reduced from a £14m penalty following appeal.
In 2012 the Financial Services Authority banned and fined the finance directors of Cattles and Welcome, as well as Welcome’s former managing director, for their roles in publishing misleading information.
Gareth Rees, executive counsel of FRC, said: “The substantial fines imposed in this case reflect the seriousness of the audit failings in relation to the critical area of impairment provisioning in a sub-prime lender and will send a strong signal to the audit community of the importance of upholding high standards of professional conduct in audit work.”