Ukraine's central bank pulls plug on PwC's bank audit rights over PrivatBank's balance sheet hole

Rebecca Smith
PwC has had its domestic bank auditing rights pulled in Ukraine
PwC has had its domestic bank auditing rights pulled in Ukraine (Source: Getty)

The National Bank of Ukraine (NBU) announced today that it had pulled the plug on PwC's domestic bank auditing rights, after it had failed to identify a $5bn (£3.9bn) balance-sheet hole at the country's largest lender in previous audits.

It comes after last December's state takeover of PrivatBank by the NBU, in a move aimed at protecting 20m customers and "preserving financial stability in the country".

Read more: Wetherspoon ends 34-year relationship with PwC and looks beyond Big Four

In a statement Ukraine's central bank said it had removed PwC's domestic subsidiary PricewaterhouseCoopers Audit LLC from "the register of accounting firms authorised to audit banks".

It said the reason for the decision was PwC's "verification of misrepresented financial information in the financial statements" of PrivatBank, concerning information on credit exposure and regulatory capital reported by the bank.

The NBU said PwC's audit report "failed to highlight the credit risk exposure" faced by PrivatBank, "which led to the bank being declared insolvent and nationalised, with substantial recapitalisation costs borne by the state".

In a statement, the bank added:

The NBU is authorised to remove accounting firms from the Register of banks’ auditors in accordance with Article 7 of the Law of Ukraine On the National Bank of Ukraine, Article 70 of the Law of Ukraine On Banks and Banking and NBU regulations.

The regulator’s practice of barring accounting firms from auditing banks is in line with international approaches and is in compliance with the 27th principle of the Basel Core Principles of Banking Supervision.

It was announced earlier this month that Ukrainian authorities were assessing measures including whether to withdraw PwC's right to audit domestic banks after officials uncovered the $5.5bn balance sheet hole at PrivatBank.

PwC Ukraine said in a statement:

We are very disappointed that the National Bank of Ukraine (NBU) has made a decision to remove us from the list of statutory auditors of Ukrainian banks in relation to our audit of PrivatBank. We do not believe that the reasons given by the NBU justify its decision. We will examine all options for reversing this decision.

We remain committed to the Ukrainian market and to serving our clients in Ukraine across all our lines of business.

In PrivatBank’s 2016 financial statements, the new management made no adjustment to any figures relating to 2015, including the value of loans or collateral, or in the disclosure of related parties or regulatory capital. The 2016 financial statements also show that the events which took place after we signed the 2015 accounts may have had a significant impact on PrivatBank’s financial status.

It marks the latest headache for the big four accounting firm which is facing a probe by the Financial Reporting Council over its audit of BT's Italian division.

The telecoms firm revealed in January that an overstatement of earnings in its Italian business would cost the group £530m.

PwC was also responsible for the mix-up at this year's Oscars that resulted in the wrong film being crowned the Best Picture winner.

Earlier today, pub chain JD Wetherspoon announced it was ending a 34-year relationship with PwC, after implementing mandatory audit rotation.

Read more: Investors kick out at PwC at BT’s AGM for failure to detect Italy fraud

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