FRC hits PwC with record £5.1m fine over RSM Tenon audit

The Financial Reporting Council (FRC) has given PwC a £5.1m fine - its largest ever – and a severe reprimand for what the regulator termed ‘extensive’ misconduct in the audit of the financial statements of RSM Tenon Group, for the financial year ended 30 June 2011

ICAEW member Nicholas Boden, senior statutory auditor and audit engagement partner, has been fined £114,750 and also severely reprimanded after admitting misconduct.

PwC’s fine of £6m was reduced to £5.1m after a settlement discount, and the firm will also pay £500,000 towards the FRC’s costs. Boden’s fine of £150,000 was reduced to £114,750, after adjustment for mitigating factors and a discount for settlement.

RSM Tenon entered into administration in 2013, appointing Deloitte as administrators and agreeing a sale of its trading entities to Baker Tilly.

PwC and Boden have admitted that their conduct fell significantly short of the standards reasonably to be expected of a member and a member firm and that they failed to act in accordance with the ICAEW’s fundamental principle of professional competence and due care.

The admitted acts of misconduct include failures to obtain sufficient appropriate audit evidence and failures to exercise sufficient professional scepticism.

The FRC said the misconduct was extensive, comprising five separate admitted acts in relation to the following areas of the audit: the accrual of bonus payments, certain aspects in relation to the recognition of work in progress and amounts recoverable on contracts, the accounting for a lease, the assessment of the impairment of goodwill, and the calculation of goodwill in relation to a subsidiary.

PwC said in a statement: 'We are sorry that aspects of the audit carried out in 2011 fell short of professional standards. We cooperated fully with the FRC during its lengthy investigation and accept its findings.

'We continually review and update our audit processes in response to both internal reviews and external inspection findings. Audit quality is of paramount importance and our annual audit quality reviews show year-on-year improvements.'

The FRC said its proceedings against Russell McBurnie, RSM Tenon Group’s former finance director, are still ongoing.

PwC was also the recipient of the previous highest fine from the FRC, when it was charged £5m in May over failures in the audit of Connaught, the FTSE 250 social housing provider which went into administration in 2010.

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