Professional services giant PwC has been fined £2.3m following an investigation by accountancy watchdog the Financial Reporting Council over its audit of sub-prime lender Cattles and Welcome Financial Services Limited back in 2007.
The original fine was agreed at £3.5m, which would have been the largest ever, but was reduced to £2.3m after mitigation and a settlement discount. The FRC also issued the accountancy firm with a severe reprimand.
PwC’s then audit engagement partner Simon Bradburn has agreed to a fine of £120,000, reduced to £75,600 after mitigation and a settlement discount. Like PwC he also faces a severe reprimand.
The investigation started after Cattles accused PwC of negligence when it audited the group.
It was alleged that basic audit checks should have revealed that the loan book of Welcome Financial Services, the biggest unit of Cattles, was weak and should not have been signed off.
Failure to spot major issues in the accounts resulted in £1.6bn in debts and liabilities being stacked up by the firm which ended up on the brink of collapse.
Gareth Rees QC, the executive counsel to the 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.
“I welcome PwC’s and Mr Bradburn’s constructive approach which has enabled us to reach this settlement. The admissions of misconduct have resulted in a significant saving in time and costs and the fines ultimately imposed have been reduced accordingly.”
A spokesperson for PwC added: “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.”