The Financial Reporting Council (FRC) has decided to act on complaints against accountancy giant PwC and its senior statutory auditor Stephen Harrison over the auditing of social housing maintenance firm Connaught.
Connaught went into administration in September 2010. The FRC's report accuses the company and the account's lead audit partner Stephen Harrison, who retired in summer 2010, of "fail[ing] to act with competence and due care in relation to the audit of their financial statements".
The FRC will also investigate Stephen Hill, Connaught’s financial director, and David Wells, the deputy financial director responsible for the company’s treasury management, in relation to the preparation and approval of Connaught’s interim financial statements for the six months ended February 2010.
The complaint alleges Hill and Wells “breached the fundamental principle of integrity” in relation to their reporting of a short-term loan provided by RBS in the period, and “that their conduct fell significantly short of the standards reasonably to be expected of members of the Institute of Chartered Accountants in England and Wales (ICAEW)”.
PwC said: “We are very disappointed that over five years after the event the FRC has decided to pursue complaints against the firm. We have cooperated fully with the FRC throughout their lengthy investigation and will now consider its concerns and respond appropriately.”
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The ICAEW first referred the case in 2010 to the then Accountancy and Actuarial Discipline Board, in relation to Connaught's 2009 accounts and interim figures. PwC did not audit the interim figures.
Connaught had £220m of debts and 50,000 unprocessed invoices, according to KPMG, who were appointed as administrators to sell-off the company's assets.
The independent regulator for auditors will now carry out an investigation, and depending on what it finds will decide whether disciplinary proceedings, to be decided at a tribunal hearing, are in order.