Jessica Fino 11 May 2017 10:39am

FRC hits PwC with £5m fine over Connaught audit

PwC has been "severely reprimanded" and ordered to pay £5m by the Financial Reporting Council (FRC) over its audit of the collapsed social housing maintenance company

Caption: The Big Four firm and a former partner have been fined by the watchdog.

Following a five-year investigation and a 12-day hearing, the FRC’s independent tribunal decided to fine the Big Four firm £5m for misconduct in relation to the 2009 audit of Connaught, as well as a further £1.5m in costs to be paid to the Executive Counsel.

Stephen Harrison, a retired PwC audit partner who oversaw the audit, was also fined £150,000.

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

In March this year, the FRC recommended that PwC pay a £6m fine, while PwC’s defence lawyer Tom Adam instead suggested a fine of £2m to £2.5m to the firm and £50,000 to Harrison.

However, the tribunal members were yet to approve the sanction, and on Thursday decided to go with slightly lighter penalties.

A PwC spokesperson said, “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."

The former FTSE 250 social housing maintenance firm collapsed in 2010, saddling creditors with major losses and costing hundreds of jobs.

The accounting regulator alleged that Harrison and PwC “failed to act with competence and due care” in relation to the audit of the financial statements for the group, Connaught Partnership Limited and Connaught Compliance Limited.

It also claimed that their conduct fell significantly short of the standards reasonably to be expected of a member or member firm of ICAEW.