PwC fined for Babcock audit failings including faking evidence

theguardian.com:

The consultancy group PwC has been hit with a £7.5m fine over a string of serious breaches while auditing the engineering company Babcock’s accounts, including faking evidence related to a sensitive government contract.

The accounting regulator, the Financial Reporting Council, said breaches were found in “every area” it had investigated in relation to the audit of Babcock’s accounts for 2017 and 2018, with PwC repeatedly failing to either challenge management, gather sufficient evidence to confirm financial statements, or follow basic audit requirements.

The FRC said it signalled a “lack of competence, care or diligence” by PwC, and raised particular concern given that most of Babcock’s business comes from highly sensitive UK government contracts, including with the Ministry of Defence.

In one case, there was no evidence that PwC’s audit team had reviewed a 30-year-contract worth up to £3bn, and that in another, the team had failed to scrutinise a €640m (£570m) contract written entirely in French. None of the team spoke French, and there was no evidence PwC tried to translate the documents to confirm the terms of the deal.

PwC’s auditors were also found to have “created a false record” of the audit evidence they had actually gathered in relation to a sensitive government contract.

All together, PwC’s string of failures meant there was a risk that mistakes or misstatements in Babcock’s financial accounts could have been missed.

The FRC’s deputy executive counsel, Claudia Mortimore, said: “The quality of these audits fell far short of the standards expected of statutory auditors. Of particular concern is the lack of scepticism applied and the failures to follow some basic audit requirements.”

The penalty that PwC will actually