PwC will pay nearly 5 million pounds ($6.2 million) as part of a pair of enforcement actions announced by the UK Financial Reporting Council (FRC) over deficiencies in the Big Four firm's audits at Galliford Try and Kier Group.
PwC was fined a reduced £3 million (US $3.7 million) by the FRC on Tuesday for audit failures at Galliford Try in fiscal years 2018 and 2019, as well as a reduced sanction of nearly £2 million (US $2.5 million) for lapses in its FY2017 work at Kier Group. PwC received discounts from originally proposed fines of £5.5 million (U.S. $6.9 million) for Galliford Try and £3.35 million (U.S. $4.2 million) for Kier Group in both cases because it made early admissions and cooperated with the regulator.
The audit firm was also given a harsh reprimand and was required to declare that its reports did not meet relevant requirements in each case. PwC must report to the FRC on certain audits conducted in 2022-23 involving long-term contacts and the impact of the remedial actions it has implemented as part of the Kier Group resolution.
Jonathan Hook, a former PwC partner who led the engagement on both audits, received reduced penalties of £82,875 (US $104,000) for Galliford Try and £52,650 (US $66,000) for Kier Group, respectively.
In a press release from Galliford Try, FRC Deputy Executive Counsel Claudia Mortimore said, "The breaches in both decision notices concern failures to properly audit revenue recognized under specific complex long-term contracts."
According to the FRC's decision notice, in both the FY2018 and FY2019 audits, Hook and PwC "did not obtain sufficient appropriate audit evidence, did not sufficiently challenge or corroborate management representations, or adequately determine whether the company had appropriately applied the requirements of the applicable financial reporting framework in relation to" an unspecified contract. Regarding revenue recognition, audit documentation, the selection and testing of construction contracts, and the testing of controls over aspects of accounting for long-term contracts, four more breaches occurred during the FY2018 audit.
The FRC stated that Galliford Try restated its FY2018-19 balances in its FY2020 financial statements, resulting in a £94.3 million (US $118 million) reduction in net assets and retained earnings for FY2018 and a £72.4 million (US $91 million) reduction for FY2019.
According to the FRC's decision notice, Hook and PwC at Kier Group failed to obtain sufficient appropriate audit evidence, perform adequate testing on accounting estimates, prepare sufficient audit documentation, and express appropriate professional skepticism. The failure of Hook and PwC did not result in misstatement, but their failure to "identify and correct errors in the company’s income and cash flow statements relating to the presentation of gains on corporate disposals completed" did. The underlying results of Kier Group were unaffected by the subsequent restatement in FY2018.
The FRC stated that the breaches were not intentional or dishonest in both cases, and that PwC has since taken steps to improve the quality of its audit work on long-term contracts.
In an emailed statement, a firm spokesman said, "We are sorry that aspects of our work were not of the required standard. Since these audits were completed, we have invested heavily in an ongoing program to strengthen audit quality, which has included measures to support the audit of long-term contracts. We have seen the positive impact of the actions we’ve taken through improved inspection results and other quality indicators over recent years, and we remain committed to the delivery of consistently high-quality audits."
By fLEXI tEAM