PwC faces extended FRC investigation into Babcock audit work
The Financial Reporting Council (FRC) today began an investigation into PwC audits for Babcock audits in 2019 and 2020. The FRC is already investigating the “Big Four” accountant’s work in 2018 and 2017 after spot checks found the quality was below par.
The watchdog has extended its investigation in light of large write-downs Babcock took last year. The company, which is a key Ministry of Defence contractor, took an impairment of £2 billion following an internal review of contract profitability. Babcock sunk to a £1.6 billion loss as a result and saw its shares drop sharply.
The FRC investigation is being carried out by its enforcement division, meaning PwC and the lead partner who led the Babcock work could face fines if investigators rule against them.
A spokesperson for PwC said: “We will co-operate fully with the FRC in its enquiries. Audit quality is of paramount importance and we remain committed to our ongoing Programme to Enhance Audit Quality and to the delivery of consistently high-quality audits.
“The FRC’s annual reviews of our audit work, policies and procedures show a continued trend of improvement in our work and we use their insights, together with our own reviews, to continuously improve how we deliver high quality audits.”
A spokesperson for Babcock declined to comment. Last year Babcock ditched PwC as its auditor after almost two decades, appointing Deloitte instead.
The extended FRC investigation comes on top of ongoing probes into PwC’s work on Wyelands Bank, BT, and collapsed minibond company London Capital & Finance.
PwC launched a £30 million programme aimed at improving its audit work in 2019.
“Big Four” accountants have faced heavy criticism over audit quality in recent years, with critics arguing accountants went easy on clients in order to win more lucrative consulting work. The Government last year proposed reforms meant to restore trust, though campaigners says they have been watered down.
