As a result of this and other audit errors – such as failing to obtain sufficient appropriate audit evidence – the Big Four firm has been fined £5.1m and severely reprimanded in a settlement reached with the Financial Reporting Council.
The deal includes a contribution of £500,000 towards the FRC’s costs.
Senior statutory auditor and audit engagement partner Nick Boden, who also admitted misconduct, received a severe reprimand and was fined £114,750. This was reduced from £150,000 after mitigating circumstances were taken into account and a settlement discount agreed.
PwC’s fine was also discounted. Had the firm not settled, the fine would have been £6m.
In a statement, the FRC said that PwC and Boden, who is an ICAEW member, admitted that their conduct had fallen far short of the standards reasonably to be expected of a member firm and a member, and that they had failed to follow ICAEW’s fundamental principle of professional competence and due care.
Their misconduct was “extensive”. They admitted five separate failings in the audit, relating to: the accrual of bonus payments; certain aspects in relation to the recognition of work in progress and amounts recoverable on contracts; the accounting for a lease; the assessment of the impairment of goodwill; and the calculation of goodwill in relation to a subsidiary.
Following the FRC's announcement, PwC issued a statement apologising for the fact that aspects of the audit fell short of professional standards. “We cooperated fully with the FRC during its lengthy investigation and accept its findings,” the firm said.
“We continually review and update our audit processes in response to both internal reviews and external inspection findings. Audit quality is of paramount importance and our annual audit quality reviews show year-on-year improvements,” it added.
RSM Tenon was acquired by Top 10 firm Baker Tilly after it went into administration in 2013. Baker Tilly later changed its name to RSM and joined the RSM international network.
FRC proceedings against ICAEW member Russell McBurnie, who was RSM Tenon’s finance director at the time, are still ongoing.
Last December, the FRC claimed its first RSM Tenon scalp when it agreed a settlement with Andrew Raynor, the group's former chief executive. He paid a fine of £26,500 and £50,000 towards the FRC costs after admitting that his conduct fell short of the standards to be expected of an ICAEW member, in relation to the approval of the financial statements of RSM Tenon.
He also admitted that he failed to obtain the necessary level of assurance required of an ICAEW member, in relation to the accounting treatment of bonus accruals and a lease, to sign off on the financial statements of RSM Tenon on the basis that they were in accordance with applicable accounting standards and represented a true and fair view of the state of affairs of the company.