The Financial Reporting Council (FRC) has fined accountancy firm PwC a total of nearly £5m for its audits of construction firms Galliford Try and Kier.
Kier
The FRC found that PwC had failed to obtain sufficient audit evidence or perform adequate testing while signing off Kier’s 2017 accounts. However, errors PwC made did not cause Kier’s financial statements to be misstated, the FRC said.
The FRC also found that PwC failed to identify and correct errors in Kier’s income and cash flow statements relating to gains on corporate disposals completed in its 2017 financial year. This error did cause the 2017 financial statements to be misstated. However, the company’s underlying results were unaffected by a restatement in the 2018 financial statements.
The FRC said it did not consider the breaches to be intentional, dishonest or reckless. It reduced its initial financial sanction of £3.35m to £1.96m, taking into account PwC’s “good level of cooperation” with the investigation.
It also hit PwC partner Jonathan Hook with a £90,000 sanction, adjusted to £52,650 as well as issuing him a severe reprimand.
Galliford Try
Meanwhile, the FRC also found that the statutory reports for Galliford Try in its 2018 and 2019 financial years did not satisfy requirements. It said PwC had made “insufficient challenge of management’s assertions” and shown a “lack of professional scepticism” in relation to the audits.
Once again, the FRC did not consider the breaches intentional, dishonest or reckless.
It gave PwC a severe reprimand and a sanction of £5.5m, reduced to £3m for its cooperation. Hook also received a severe reprimand and a sanction of £150,000, reduced to £82,875.
‘Importance of rigorous auditing’
Claudia Mortimore, FRC deputy executive counsel, said: “Rigorous auditing of long-term contract accounting is particularly important in the audit of construction companies, where many contracts are spread over a number of years.
“Auditors must not only ensure that they obtain sufficient appropriate audit evidence to support the accounting of the contracts, but also apply sufficient professional scepticism. This is vital so that investors can have confidence in the financial statements.
“The respondents have accepted that there were deficiencies in the work performed on long-term contracts in this [Kier’s] audit. In the intervening years, PwC has introduced a number of initiatives aimed at improving the quality of audit work in this area.
“In addition to the financial sanctions, the non-financial sanctions require PwC to review long-term contract audit work in subsequent audit engagements and to report to the FRC as to the efficacy of the initiatives it has introduced.”
