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PwC and EY hit with multimillion-pound fines over LCF audit failures
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| Posted Date : 09-May-2024 , 07:04:29 am | Posted By CASANSAAR |
The UK accounting watchdog has imposed multimillion-pound fines on PwC and EY for failures in their audits of London Capital & Finance, the defunct investment group at the centre of one of the biggest retail savings scandals in recent years.
The Financial Reporting Council said on Tuesday that it had handed out penalties of £4.9mn and £4.4mn against PwC and EY, respectively, for “multiple breaches” during their reviews of LCF’s accounts in 2016 and 2017.
Both Big Four firms had their fines discounted from £7mn for admissions of failure and early disposal. It is the largest-ever fine levied against EY by the FRC, and the watchdog’s third-highest sanction against PwC before the discount is taken into account.
Oliver Clive & Co, a smaller accounting firm, was handed a £42,000 fine for LCF’s 2015 audit.
LCF raised about £237mn from investors as it promised returns of up to 8 per cent through so-called minibonds. Its collapse in 2019 triggered criminal and regulatory investigations, as well as an inquiry into the Financial Conduct Authority’s supervision of the company.
“In each of these three audits the auditors failed to identify and assess the risks of material misstatement through understanding LCF’s business,” said Jamie Symington, deputy executive counsel at the FRC.
“These breaches are made considerably more serious by the fact that all of the auditors knew they were auditing an expanding business which was engaged in selling unregulated financial products to retail investors, and that potential investors might place reliance on the clean audit opinions,” he added.
During the 2016 audit, PwC and its audit partner Jessica Miller admitted eight breaches, including a failure to apply sufficient professional scepticism with regard to the risk of fraud. The FRC said that during the year to April 2016, LCF issued £9.2mn in bonds and was growing even more rapidly by the time the audit report was signed.
Miller, who remains a partner at the Big Four firm, was handed a £105,000 fine and a severe reprimand. PwC declined to comment on whether the firm would pay Miller’s penalty.
PwC said: “We are sorry our work in 2016 did not meet the standards expected and that we expect of ourselves. In the eight years since this work took place, we have made significant changes to our audit methodology, policies and guidance.”
EY and its audit engagement partner Neil Parker admitted six breaches relating to the 2017 audit, which included “a significant failure to gain a proper understanding of LCF’s business and internal controls, and to apply adequate professional scepticism”. During its 2017 financial year, LCF issued £53mn in bonds. Parker was handed a £47,250 fine and a severe reprimand.
EY, which also declined to comment on whether it would pay Parker’s fine, said: “Our 2017 audit of London Capital & Finance fell short of our standards and for this we apologise. We have taken significant steps to address the issues identified and we are committed to learning from our mistakes.”
The FRC said EY also provided an “exceptional level of co-operation” during the investigation.
The penalties mark the latest fallout from the LCF scandal. Last year, Michael Andrew Thomson, LCF’s former chief executive, was sentenced to a 10-month suspended jail term for breach of a restraint order placed on his bank account relating to a Serious Fraud Office investigation.
In February, the High Court was told that LCF ran a “Ponzi scheme” in which money raised from investors was spent on diamond earrings, horses, shotguns and membership in Annabel’s nightclub.
Oliver Clive & Co audited LCF’s accounts for a one-month period ended April 30 2015. It admitted 10 breaches, including of compliance with ethical standards. The FRC said: “There was a failure to identify and guard against the threats to objectivity arising from the fact that [the firm] acted as the LCF’s accountants and had prepared the financial statements.” (Source - Financial Times)
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Category : Auditing |
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