PwC and two former partners have been penalized a combined £5.8 million by the Financial Reporting Council (FRC) for significant auditing shortcomings concerning defense contractor Babcock International Group plc. The sanctions stem from audits of Babcock for the financial years ending March 31, 2017 (FY2017) and March 31, 2018 (FY2018), and its subsidiary, Devonport Royal Dockyard Limited (DRDL), for FY2018. The FRC stated that the audit quality fell considerably below expected standards, highlighting a lack of skepticism and failures to adhere to basic audit procedures.
PwC was originally fined £7.5 million, which was reduced to £5.625 million due to early admissions and settlement. Nicholas Campbell Lambert, the engagement partner for the Babcock audits, faced a £200,000 fine, reduced to £150,000. Heather Ancient, the engagement partner for DRDL, received a £65,000 fine, discounted to £48,750. In addition to monetary penalties, all parties received severe reprimands and declarations that their audit reports did not meet reporting requirements. PwC was also mandated to review and amend certain training programs and cover the investigation costs.
The FRC's investigation uncovered numerous and serious breaches, including a repeated failure to challenge management, insufficient evidence gathering, and instances where basic audit requirements were neglected. For example, auditors reportedly did not read a 30-year Public Private Partnership contract with revenues of approximately £77 million for FY2018, nor did they translate a €640 million contract written in French. The report also cited a lack of independence due to PwC providing inappropriate accounting advice and the creation of a 'false record' in a workpaper related to a sensitive government contract.
