Risk & Compliance

PwC Fined Over Audit Failure

The company was fined $5.8 million over its audit of technology firm Redcentric.
PwC Fined Over Audit Failure

The U.K. Financial Reporting Council (FRC) fined PwC $5.8 million over failures related to its audits of the 2015 and 2016 financial statements of IT services company Redcentric.

The FRC also fined two PwC partners, Jaskamal Sarai and Arif Ahmad, $178,000 each over their failings related to the Redcentric audit.

The fine was initially $8.25 million but was reduced after the company agreed to settle. Sarai and Ahmad were initially fined $253,675 before their settlement.

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Redcentric’s 2016 statements were extensively restated, with net assets written down by £15.8 million. Its after-tax profit of £5.3 million was restated to a loss of £4.2 million. The restatements resulted in a breach of Redcentric’s debt covenants, according to the FRC.

The regulator said PwC made numerous errors in its audits, some of which were of a “fundamental nature, evidencing a serious lack of competence in conducting the audit work.”

“Professional skepticism was lacking in this audit,” Claudia Mortimore, deputy executive counsel at the FRC, said. “Had it been applied, it is likely that certain material misstatements would have been detected.”

The settlement comes as regulators and legislators in the U.K. plot details of an overhaul of the audit industry. PwC has been fined over its audits of collapsed department store BHS, RSM Tenon Group, and for its audit of failed maintenance firm Connaught.

Under the settlement, PwC agreed to closely monitor the work in its Leeds audit practice. Sarai and Ahmad, who were also reprimanded, agreed to take part in training on accounting standards.

In 2017, Redcentric left PwC and began working with rival auditor KPMG.

“We are sorry that our work fell below the professional standards expected of us,” a PwC spokesman said. “Since the work in question was completed we have taken numerous steps to strengthen processes.”

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