Thursday 13 June 2019 9:29 am

PwC fined £4.5m for ‘lack of competence’ in Redcentric audit

The audit watchdog has fined PwC more than £4.5m for a “serious lack of competence” in its audit of IT services firm Redcentric.

The Financial Reporting Council (FRC) slammed the auditors’ failure to exercise professional scepticism following an investigation after a £20m black hole was found in Redcentric’s accounts in 2016.

Read more: PwC invests £30m in audit quality but stops short of CMA recommendations

The regulator said the breaches were neither intentional, deliberate nor reckless but were “of a basic / fundamental nature, evidencing a serious lack of competence in conducting the audit work.

Two partners, Jaskamal Sarai and Arif Ahmad, were fined £140,000 each and given a severe reprimand.

PwC, also handed a severe reprimand, has been required to further monitor and support its Leeds office to improve its work.

The IT services company’s 2016 statement had to be restated, with net assets written down by £15.8m, and a profit after tax of £5.3m restated to a loss of £4.2m.

The FRC added that Sarai and Ahmad had since undertaken training to apply professional scepticism when working with clients.

Earlier this month the Big Four firm announced plans to invest £30m to improve the quality of its audit work.

The sector has faces intense scrutiny following a series of scandals, including the collapse of BHS, which PwC audited, outsourcer Carillion and Patisserie Valerie.

Read more: Patisserie Valerie overstated financial position by £94m, auditors say

“The sanctions reflect the seriousness and extent of the breaches,” deputy executive counsel to the FRC Claudia Mortimore said.

“Professional scepticism was lacking in this audit – had it been applied, it is likely that certain material misstatements would been have detected.”

A PwC spokesman said: “We are sorry that our work fell below the professional standards expected of us.

“Since the work in question was completed we have taken numerous steps to strengthen processes.”