Big 4 firm fined £5.6m for defence giant audit failures
PwC has been fined £5.6m and two former partners have been severely reprimanded for failures in two annual audits of Babcock companies.
Former Plymouth office leader Heather Ancient, who is now retired, and Nick Campbell Lambert, who has relocated to Sydney with another Big 4 firm, were both also fined by the Financial Reporting Council (FRC).
Heather Ancient
The punishments follow from FRC’s investigations of the audits of Babcock International Group for 2017 and 2018 and Babcock subsidiary Devonport Royal Dockyard for 2018. The regulator is continuing its investigation into PwC’s 2019 and 2020 audits of the Babcock group.
In 2021 global defence giant Babcock recorded a loss of £1.6bn after a review of the profitability of its contracts resulted in significant writedowns as part of 140 adjustments to its financial figures.
Claudia Mortimore, deputy executive counsel at the FRC, said: “The quality of these audits fell far short of the standards expected of statutory auditors.
“Of particular concern is the lack of scepticism applied and the failures to follow some basic audit requirements. This robust package of sanctions seeks to deter future breaches and encourage improvement by the firm, in circumstances where PwC has now been sanctioned four times since 2019.”
The FRC’s investigation found “numerous, serious breaches” including “repeated failures to challenge management and obtain sufficient appropriate evidence, reflecting a general reluctance to challenge management across these parts of the audits; and examples of a failure to follow basic audit requirements, evidencing a lack of competence, care or diligence”.
It highlighted how one €640m contract was written in French, but the audit team neither possessed French language skills nor obtained a translation of the contract.
PwC first audited Babcock in 2003 and had been in post for nearly two decades before being replaced by Deloitte.
A PwC spokesperson said: “We’re sorry that the work in question was not of the standard required and that we demand of ourselves.
“In the years since, we have made significant and continuous investment in strengthening audit quality, which has been borne out through improved inspection results. We are focused on ensuring the consistent delivery of high quality audits.”
