(qlmbusinessnews.com via theguardian.com – – Tue, 7th June 2022) London, Uk – –
Accounting firm failed to adequately scrutinise long-term contracts at construction companies, says FRC
PricewaterhouseCoopers has received penalties totalling £5m for failures in its audit of the construction firms Galliford Try and Kier, in the latest fines imposed on a “big four” accounting firm.
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The Financial Reporting Council, the accounting watchdog, also imposed a £136,000 fine on the head of PwC’s construction division and issued severe reprimands to PwC, which it said had failed to adequately scrutinise long-term contracts at both builders, among other failings. It ordered the firm to review its audit work of listed companies that rely on long-term contracts.
PwC will pay about £3m related to its failings in the audit of Galliford Try, and £2m related to its audit of Kier.
Jonathan Hook, the PwC global engineering and construction leader, was also reprimanded and fined £82,875 for his role in the audit of Galliford, one of the UK’s biggest housebuilding, regeneration and construction groups, and a further £52,650 in relation to Kier.
A number of high-profile corporate collapses including Carillion and BHS has led to calls for a breakup of the four big accounting and consultancy firms – PwC, EY, KPMG and Deloitte – to tackle potential conflicts of interest. Last month, EY said it was drafting plans to spin off its audit business, in what would be the biggest shake-up in the sector in decades.
The FRC said PwC and Hook had admitted breaches of accounting rules, as they insufficiently challenged management’s assertions about some of Galliford’s long-term contracts in the 2018 and 2019 audits and displayed a “lack of professional scepticism”.
The company’s results had to be restated, which reduced profits in the year to 30 June 2018 by 22% and also resulted in reductions in net assets for 2018 and 2019.
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The FRC said PwC and Hook had “failed to identify and correct errors” in Kier’s accounts for 2017, relating to corporate disposals. They also did not adequately challenge the company’s accounting estimates and failed to carry out the audit with “sufficient professional scepticism”.
The watchdog does not believe the breaches were intentional, dishonest or reckless and noted that PwC had since introduced a number of measures designed to improve the quality of its audit work on long-term contracts. It will report the results to the FRC over two years.
By Julia Kollewe
