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February 5, 2023

PwC In the U.K. Got a Big Fine For Doing a Crappy Job Auditing Redcentric

Oh look, a Big 4 firm other than KPMG got in trouble earlier today with the audit overseer across the pond.

The Wall Street Journal reported:

The Financial Reporting Council, Britain’s regulator for accounting and audit, on Thursday penalized PwC and partners Jaskamal Sarai and Arif Ahmad in relation to audits of the 2015 and 2016 financial statements of Redcentric PLC, a Harrogate, England-based company.

PwC was handed a £6.5 million ($8.25 million) fine and a severe reprimand by the FRC. The fine was reduced to £4.5 million because the professional services firm agreed to settle. PwC will have to closely monitor the work conducted by its Leeds audit practice under terms agreed with the regulator.

Arif Ahmad

Why such scrutiny of the Leeds office? Remember that £6.5 million fine PwC got from the FRC in June 2018 for its horrible auditing of the now-collapsed retailer BHS? That audit was (mis)handled in the Leeds office, according to the Financial Times.

Former PwC audit partner Steve Denison, who was based in Leeds, was fined £325,000 and banned from audit work for 15 years as part of PwC’s punishment from the FRC.

In addition, the FRC forced PwC to send it detailed annual reports about the goings-on in its Leeds office for three years.

Jaskamal Sarai

This time around, PwC was punished for failing to detect various fraud risks in Redcentric’s financial statements, the WSJ reported. Thus, the company’s 2016 financial statements were extensively restated, resulting in a breach of Redcentric’s debt covenants.

The FRC said the firm and its partners, Ahmad and Sarai, applied superficial analytical procedures and failed to conduct a proper analysis of Redcentric’s financial statements, according to the WSJ.

PwC, of course, apologized for its shoddy auditing and added: “Since the work in question was completed we have taken numerous steps to strengthen processes.”

Ahmad and Sarai each got a severe reprimand and were docked £200,000, but their fines were reduced to £140,000. They were also forced to take training on auditing standards related to quality control for an audit of financial statements and the conduct of an auditor.

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