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PwC fined £2.3m over sub-prime lender audit failures

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PricewaterhouseCoopers has been fined £2.3m by the Financial Reporting Council for mishandling the auditing of failed sub-prime lender Cattles and its subsidiary Welcome Financial Services.

PwC audited the financial statements of Cattles and Welcome for 2007.

The FPC has since carried out a disciplinary case about how PwC and the then audit engagement partner Simon Bradburn handled the audit.

The FPC says PwC and Bradburn both failed at aspects of handling the audit.

An FPC statement says: “PwC and Mr Bradburn have admitted that their conduct fell significantly short of the standards reasonably to be expected of a member firm and a member respectively in issuing unqualified audit opinions in respect of the 2007 Cattles and Welcome financial statements.

“This occurred in circumstances where PwC (i) had insufficient audit evidence as to the adequacy of the loan loss provision and (ii) had failed to identify the fact that the impairment policy was not adequately disclosed and that the disclosures in those financial statements were not in compliance with the rules.”

PwC has been fined £3.5m, reduced to £2.3m after mitigation and a settlement discount.

The firm will also pay an extra £750,000 as a contribution towards the cost of the disciplinary case.

The FPC has also fined Bradburn £120,000, reduced to £75,600 after mitigation and a settlement discount.

FRC executive counsel Gareth Rees says: “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 PwC spokesman says: “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.”

In March 2012 the FSA banned and fined Cattles finance director James Corr £400,000 and banned and fined Welcome finance director Peter Miller £200,000 for their roles in publishing misleading information.

In October 2012 the FSA banned former Welcome managing director John Blake, who was also fined £100,000, for providing false and misleading statements about the quality of the company’s loan book.

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Comments

There are 5 comments at the moment, we would love to hear your opinion too.

  1. Time to do something similar to KPMG for their audits of HBOS and investigation into the removal of Paul Moore. Deloitte should also suffer a similar fate for their audits of RBS.

  2. Would Margaret Cole stand up please , and take a bow !

    Her responsibilities are reputation, regulation, risk, quality and compliance !

    Did she learn nothing while at the FSA ? ……. obviously not !

    • She wasnt at PWC at the time of the Audit was she? I thought she was at the FSA then?
      Why for miselading (fraudulent?) info are we only talking fines and not criminal rather than civil procedures?
      The big firms here have come away once agin with proportionatly less damage than happens to small firms advisers and business owners.

  3. DH

    You were almost on target. Please remember that these firms are not only employed by the regulator for all kinds of outsourced tasks, but also operate the revolving door between themselves.

    Why they use the big four audit and accountnacy firms so slavishly has always been a source of wonder to me. Why not (for example ) Bain, McKinsey, Accenture, Cap Gemini, Boston etc??

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