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PWC fined £4.55m, partners sanctioned over Redcentric plc

The UK Financial Reporting Council (FRC) has issued a Final Decision Notice under the Audit Enforcement Procedure and imposed sanctions against PricewaterhouseCoopers LLP (PWC), and two partners Jaskamal Sarai and Arif Ahmad, in relation to the statutory audits of the financial statements of Redcentric plc for the financial years ending 31 March 2015 (FY2015) and 31 March 2016 (FY2016).

The sanctions are:

PWC

  • A fine of £6.5m (discounted to £4.55m for admissions and early disposal);
  • A Severe Reprimand;
  • A condition that PwC supplement the monitoring and support of the Leeds Office audit practice on terms which have been agreed with the FRC; and
  • A declaration that the Statutory Audit Reports did not satisfy the Relevant Requirements.

Sarai (in respect of FY2015 only):

  • A fine of £200,000 (discounted to £140,000 for admissions and early resolution); and
  • A Severe Reprimand.

Ahmad (in respect of FY2016 only):

  • A fine of £200,000 (discounted to £140,000 for admissions and early resolution); and
  • A Severe Reprimand.

In addition, training has been undertaken by Sarai and Ahmad in relation to compliance with the requirements of ISA 220, as it relates to supervision of the engagement team and the application of professional scepticism in accordance with ISA 200.

The Respondents each admitted the breaches prior to the issue of the Final Decision Notice and received a discount of 30% in relation to the fines.

The breaches of Relevant Requirements were numerous and in certain cases were of a basic and/or fundamental nature, evidencing a serious lack of competence in conducting the statutory audit work. A number of the breaches relate to the auditors’ failure to exercise professional scepticism, which is at the heart of auditors’ work.

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.”

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