PwC hit by multi-million pound fine for subprime lender audit failures
ACCOUNTANCY practice PricewaterhouseCoopers has been reprimanded and fined £2.3m over its audits of subprime lender Cattles’ financial statements, along with those of its biggest division Welcome Financial Services.
The fine was reduced from an initial £3.5m due to the “constructive approach” of PwC and former partner Simon Bradburn, said the Financial Reporting Counsel.
A disciplinary case was brought against PwC and Mr Bradburn following the audit of Batley-based subprime lender Cattles plc and Welcome Financial Services (which Cattles acquired in 1994) for the year ended 31 December 2007.
Cattles came close to bankruptcy due to accounting irregularities during the recession. It blamed PwC for its troubles, alleging that Welcome’s loan book was much weaker that the firm had made out.
A lawsuit led by creditors of Cattles against PwC accusing the firm of negligence was settled in 2015.
The FRC said that both the company and MR Bradburn acknowledged their conduct fell “significantly short” of the standards expected.
It said they were accused of issuing unqualified audit opinion in regards to the 2007 audit.
According to them, PwC had insufficient audit evidence as to the adequacy of the loan loss provision and had not flagged an inadequate impairment policy.
PwC has been fined £2.3m with an additional £750,000 for the costs associated with the tribunal.
Mr Bradburn was fined £75,600 after mitigation and a settlement discount, and has received a “severe reprimand”.
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 subprime 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 said: “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.”
The FRC is also investigating PwC over its handling of British Home Stores’ accounts. It has been accused of not raising any serious concerns about the BHS accounts in 2014, prior to the sale to Dominic Chappel for £1. The high street staple closed its last stores in the country last month.
Had the £3.5m fine been imposed on PwC, it would have been the biggest-ever, after Deloitte was forced to pay out £3m over the collapse of carmaker MG Rover. That fine was itself reduced from £14m on appeal.
