PricewaterhouseCoopers (PwC)

Auditors face greater scrutiny

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Britain's beancounters are facing tighter controls after a series of auditing scandals.

The Financial Reporting Council (FRC) said UK auditors will need to follow "significantly stronger requirements" than current international standards.

The UK's big four auditing firms - PwC, KPMG, Deloitte and EY - have all faced questions after the collapse of firms such as Carillion and Patisserie Valerie.

Auditors must now show greater work to "robustly challenge management's assessment of going concern, thoroughly test the adequacy of the supporting evidence, evaluate the risk of management bias and make greater use of the viability statement", the FRC said.

The revised standard also requires improved transparency with "a new reporting requirement for the auditor of public interest entities, listed and large private companies to provide a clear, positive conclusion on whether management's assessment is appropriate".

PwC wins Northern Rock contract

Northern Rock
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There's an interesting story in the Financial Times this morning about the fact that PwC has been awarded a £16.5m contract to manage the government's remaining assets in Northern Rock despite the accountancy firm being accused of complacency in its audits of the bank when it collapsed in 2007.

PwC was criticised for failing to highlight the riskiness of Northern Rock's business model, the failure of which sparked the first run on a UK bank in 150 years and led to a government rescue.

Sports Direct auditor search: excuses, excuses?

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No wonder Sports Direct wanted Grant Thornton to stay on for at least another year as it auditor - its search for a new firm isn't going too well.

In its annual report it said that its early discussions with the "big four" - KPMG, PwC, Deloitte and EY - "have thrown up some barriers"

  • Deloitte does tax compliance and advisory work so for Sports Direct so "cannot perform audit work at the same time".
  • KPMG has "indicated conflicts of interest based on an existing portfolio of clients". But Sports Direct says: "We do not believe based on our understanding of big four independence procedures that this is insurmountable."
  • EY, the retailer says, is reluctant to be Sports Direct's auditor because it acted as administrator to House of Fraser which the retailer rescued last year.
  • And PwC "has had some widely publicised fines in recent years and we understand there is a reluctance to engage based on our ownership structure".

Sports Direct is non-plussed.

It notes "that companies with supposed strong levels of corporate governance consisting of huge boards, many board meetings and management packs in the tens and hundreds, which the big four have been more than happy to audit, for instance Debenhams or Carillion, have been shown to be seriously lacking in what should be important to investors, and indeed auditors, transparency, true and fair accounts, and realistic communications and expectations to the market".

Auditing firms fail to hit targets


Auditing has been in the spotlight after a series of high profile company failures, such as Carillion and the regulator, the Financial Reporting Council, says in its latest review of audit inspections that all accountancy firms have failed to hit targets.

Stephen Haddrill, chief executive of the FRC, said: “At a time when the future of the audit sector is under the microscope, the latest audit quality results are not acceptable.Audit firms must identify the causes of their audit shortcomings and take rapid and appropriate action to improve quality. Our latest results suggest that they have failed to achieve this in recent years.”

The FRC found cases in all seven firms where auditors had failed to challenge management sufficiently on judgemental issues. KPMG, Grant Thornton and PriceWaterhouseCoopers are subject to tougher supervision.

PwC says sorry after £4.5m fine

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. In addition, this month we announced an additional £30m investment annually as part of a new wide ranging action plan to provide greater focus on the quality and public interest responsibilities of PwC’s statutory audit services. Our audit quality action plan has three key areas: additional investment in training, people and technology; further alignment of PwC’s audit business behind audit quality; and a reinforced focus on culture and quality control. Taken together these represent a significant transformation of our audit business that will support our high performing teams in an environment which places a culture of challenge at its heart


PwC fined £4.5m over 'serious lack of competence' in audit

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PricewaterhouseCoopers has been fined £4.5m by the Financial Reporting Council (FRC) for failing to challenge bosses at IT management firm Redcentric where a £20m hole was later found.

The FRC said PwC showed a "serious lack of competence" in its audit work for the firm.

It said that partners at the firm Jaskamal Sarai and Arif Ahmad committed a number of policy breaches relating to their "failure to exercise professional scepticism" and were fined £140,000 each.

Claudia Mortimore, deputy executive counsel to the FRC, said: "The sanctions reflect the seriousness and extent of the breaches. Professional scepticism was lacking in this audit.

"Had it been applied, it is likely that certain material misstatements would have been detected.

"As this is the second final decision notice involving PwC Leeds' office in recent years, we have mandated that the firm supplements its ongoing monitoring and support for that office, to further improve the quality of audit work in the future."

Payout from MG Rover liquidators

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The car company entered administration in April 2005

Liquidators at PwC say they will distribute a further £5.2m to unsecured creditors, including 1,200 former employees, of Powertrain, part of the MG Rover Group which manufactured engines and gearboxes.

About 6,000 workers lost their jobs when the Longbridge-based firm entered administration in 2005.

PwC said the 4.74p in the pound payout to a total of 1,700 unsecured creditors brings the total return to date to Powertrain’s unsecured creditors to 39.74p - a total of £43.7m.

Matthew Hammond, PwC Midlands region chairman, said: "The collapse of the MG Rover Group impacted many families and communities.

"Our teams working on this case have brought to life one of our key purposes of solving important problems - in this case the size and complexity of the MG Rover Group and enabling a significant return to creditors.”

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PwC says that more than £130m has been distributed to all creditors since its appointment in 2005.