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PwC fined over botched audit of UK lender Cattles
[LONDON] British accountant PwC has been ordered to pay more than 3 million pounds (S$5.2 million), and one of its partners has been fined 75,600 pounds, over a 2007 audit that failed to spot a deep hole in the books of defunct subprime lender Cattles.
The Financial Reporting Council (FRC) watchdog on Wednesday also issued a severe reprimand to both PwC and one of its partners, Simon Bradburn, in a "strong signal to the audit community" about the importance of upholding high standards.
The FRC's report draws a line under a seven-year inquiry into a saga that has already seen PwC face one of the largest professional negligence claims since the financial crisis over its handling of scandal-struck Cattles and its Welcome unit.
The auditor, which agreed to pay a fine of 2.3 million pounds and the FRC's legal costs of 750,000 pounds, admitted that parts of its 2007 audit of Cattles had not been up to scratch but said its standards had improved.
PwC was sued by Cattles' creditors for 1.6 billion pounds in 2013 for alleged negligence in a claim dismissed by the accounting giant as "inflated and misguided" at the time. The two sides struck a confidential, out-of-court settlement days before the case was due to be heard in 2015.
Cattles, which specialised in lending to people with weak credit histories and was once listed on the London bourse, was fined by the markets regulator in 2012 and two former directors were banned from holding financial services jobs after publishing misleading information and acting without integrity.
The regulator said at the time that Cattles misled investors in its 2007 annual report about how much of its loan book was in arrears, announced a pretax profit of 165.2 million when it should have posted a pretax loss of 96.5 million and used misleading figures in a rights issue prospectus in April 2008.
The FRC said on Wednesday that both PwC and Bradburn's misconduct involved a failure to act or conduct business with integrity. But it added that they had been "deliberately misled by third parties".
"We recognise that certain aspects of this 2007 audit fell short of expected standards," PwC said in an emailed statement. "Audit quality is of paramount importance to PwC and the FRC's annual audit quality assessments have shown a trend of improvement in our work over several years."
The settlement between the FRC, PwC and Bradburn was signed by Margaret Cole on behalf of PwC. Ms Cole was the former enforcement chief at the UK markets regulator. She left the then Financial Services Authority in 2012.