PwC Slapped with Largest Ever Fine of US$6.6 Million Over Audit Misconduct

The United Kingdom’s Financial Reporting Council (FRC) has penalized accounting giant PwC with a record £5.1m ($6.6 million) for misconduct over its audit of RSM Tenon Group Plc.

In a statement, the FRC announced that PwC and Nicholas William Edward Boden, Senior Statutory Auditor and Audit Engagement Partner, have been fined and severely reprimanded after admitting Misconduct in relation to the audit of the financial statements of RSM Tenon Group plc, for the financial year ended 30 June 2011. This follows the delivery of a formal complaint by the FRC’s Executive Counsel in connection with their conduct on that audit last December.

In addition to the fine and severe reprimand, PwC LLP will pay a sum of £500,000 to be paid towards the FRC’s Executive Counsel’s costs.

Boden will pay a fine of £150,000 reduced to £114,750, after adjustment for mitigating factors and a discount for settlement.

PwC and Boden, a member of the Institute of Chartered Accountants in England and Wales (ICAEW), 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 skepticism.

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.

Proceedings against Russell McBurnie, RSM Tenon Group plc’s former Finance Director, are still ongoing.

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