PwC hit with record FRC fine over Connaught audit misconduct

FRCThe Financial Reporting Council (FRC) has today issued PwC with a £5 million fine, its largest fine to date, for misconduct relating to its audit of Connaught plc, a FTSE 250 social housing company which went into administration in 2010.

The UK’s independent regulator for accountants and actuaries’ severe reprimand of the firm, which handles more audits in the FTSE 350 than any other auditor, according to its own market share data, included a £150,000 fine for Stephen Harrison, a retired PwC audit partner.

The record sanction follows a five year FRC investigation and a 12 day hearing.

The independent Tribunal, chaired by the Rt Hon Sir Stanley Burnton, made findings of misconduct in relation to three areas of audit: mobilisation costs, long term contracts and intangible assets.

PwC were also ordered to pay the Executive Counsel’s costs and to make an interim payment on account of £1.5m.

A spokesman for the FRC said the penalty was “the FRC’s biggest fine to date”, although this is less than the £6m argued for by the watchdog’s counsel.

But it is still double the £2m–£2.5m penalty for the firm and £50,000 for Mr Harrison, that lawyers for PwC suggested during public hearings in March when they argued that the case was insufficiently exceptional to merit a record fine.

PwC had admitted failure to exercise appropriate scepticism or gather sufficient evidence, but said that its auditors had been intentionally misled by Connaught’s management.

A statement issued by PwC read: “We are sorry that our work fell short of professional standards. Since 2010 when the case began, we’ve worked hard to improve our procedures and processes. 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.”

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