Accounting giants PwC and EY fined for audits of failed minibond firm LCF

The Financial Reporting Council (FRC) said PwC has agreed to a £4.9m penalty, reduced from £7m for early settlement, for failures over its audit of the 2016 financial statements of London Capital & Finance. PwC audit engagement partner Jessica Miller was also given a £105,000 financial sanction.

PwC and Ms Miller admitted eight breaches, with the most significant being a “failure to obtain an adequate understanding of the nature of LCF’s business and the company’s internal controls, and to apply sufficient professional scepticism in that regard”, according to the FRC.

Ernst & Young (EY), which was responsible for auditing LC&F’s 2017 accounts, the last before it collapsed, has been fined £4.4m, with its audit engagement partner Neil Parker paying a £47,250 sanction. The FRC said EY and Mr Parker admitted six breaches, with failures including “multiple breaches of fundamental requirements in several key areas”.

“Again, there was a significant failure to gain a proper understanding of LCF’s business,” said the FRC. Both the EY penalties were also reduced, from an initial £7m and £75,000 respectively, with the FRC adding that PwC and Mr Parker “gave an exceptional level of co-operation worthy of being treated as a mitigating factor”.

A third, smaller firm, Oliver Clive & Co, which had audited LC&F’s 2015 statements, has been sanctioned with a £42,000 penalty and a £14,000 financial sanction for its auditor Emma Benjamin.

These were reduced from £60,000 and £20,000 respectively.

Jamie Symington, deputy executive counsel at the Financial Reporting Council, said: “In each of these three audits the auditors failed to identify and assess the risks of material misstatement through understanding LCF’s business.”

A PwC spokesperson 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. Audit quality is our top priority and the results of the changes we have made have been recognised in our annual inspection and supervision reports from the FRC in recent years.”

EY said in a statement: “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 delivery of high-quality audits remains our absolute priority and we continue to invest in technology and processes to drive continuous improvement. Our UK Audit Quality Strategy also emphasises the importance of a strong audit culture and professional scepticism.

“We have fully cooperated with the FRC throughout its investigation.”

The Yorkshire Post contacted Oliver Clive & Co, and was told the firm had no comment to make.