WIREDGOV

The Financial Reporting Council (FRC) today announces the outcome of the disciplinary case relating to PricewaterhouseCoopers LLP (PwC) and its audits of the financial statements of Cattles plc (Cattles) and Welcome Financial Services Limited (Welcome) for the year ended 31 December 2007.

A settlement agreed between the FRC’s Executive Counsel, PwC and the then audit engagement partner, Mr Simon Bradburn, has been approved by a legal member of the independent Tribunal Panel. 

PwC and Mr Bradburn have admitted that their conduct fell significantly short of the standards reasonably to be expected of a Member Firm and a Member respectively in issuing unqualified audit opinions in respect of the 2007 Cattles and Welcome financial statements in circumstances where PwC (i) had insufficient audit evidence as to the adequacy of the loan loss provision and (ii) had failed to identify the fact that the impairment policy was not adequately disclosed and that the disclosures in those financial statements were not in compliance with IFRS 7.

The parties have agreed the following terms of settlement:

PwC

• A Fine of £3,500,000 reduced to £2,300,000 after mitigation and a settlement discount;
• A Severe Reprimand;
• A sum of £750,000 to be paid by PwC as a contribution to the Executive Counsel’s costs.

Mr Simon Bradburn

• A Fine of £120,000 reduced to £75,600 after mitigation and a settlement discount;
• A Severe Reprimand.

Gareth Rees QC, the Executive Counsel to the FRC, said,

“The substantial fines imposed in this case reflect the seriousness of the audit failings in relation to the critical area of impairment provisioning in a sub-prime lender and will send a strong signal to the audit community of the importance of upholding high standards of professional conduct in audit work.  I welcome PwC’s and Mr Bradburn’s constructive approach which has enabled us to reach this settlement. The admissions of Misconduct have resulted in a significant saving in time and costs and the fines ultimately imposed have been reduced accordingly.”

Notes to editors:

1. The FRC is responsible for promoting high quality corporate governance and reporting to foster investment.  We are the UK competent authority for audit and set the UK Corporate Governance and Stewardship Codes as well as UK standards for accounting, auditing and actuarial work.  We represent UK interests in international standard-setting.  We also monitor and take action to promote the quality of corporate reporting and auditing.  We operate independent enforcement arrangements for accountants and actuaries; and oversee the regulatory activities of the accountancy and actuarial professional bodies.
2. In relation to enforcement matters, the FRC is the independent, investigative and disciplinary body for accountants and actuaries in the UK dealing with cases which raise important issues affecting the public interest. In brief, the stages of the disciplinary process under the Accountancy Scheme are:

• Decision to investigate
• Investigation
• Decision whether to bring enforcement proceedings against Member Firm or Member and, if so decided, referral to Disciplinary Tribunal
• Tribunal hearing
• Determination and imposition of sanction and/or costs orders

Under the Accountancy Scheme the FRC can start a disciplinary investigation in one of two ways: (i) the professional bodies can refer cases to the FRC; and (ii) the FRC may decide of its own accord to investigate a matter. The Conduct Committee will consider each case identified or referred to it and decide whether or not the criteria for an investigation are met.

The criteria are specified in paragraph 5(1) of the Accountancy Scheme. A Member or Member Firm shall be liable to investigation under this Scheme only where, in the opinion of the Conduct Committee the matter raises or appears to raise important issues affecting the public interest in the United Kingdom and there are reasonable grounds to suspect that there may have been Misconduct or it appears that the Member or Member Firm has failed to comply with any of his or its obligations under paragraphs 14(1) or 14(2) of the Scheme.

Investigations are conducted by Executive Counsel and the Enforcement division.

3. All Press enquiries should be directed to:

• Peter Timberlake, Head of Communications, on telephone: 020 7492 2397/ 07768 502332, or email: p.timberlake@frc.org.uk.
• Rita Carolan, Communications Manager, on telephone: 020 7492 2307/ 07428 149096 or email: r.carolan@frc.org.uk.
• Alana Sinnen, Communications Manager, on telephone: 020 7492 2395/ 07949 005526 or email: a.sinnen@frc.org.uk.

Related Resources

Particulars of Fact and Acts of Misconduct - PricewaterhouseCoopers LLP and Mr Simon Bradburn

Settlement Agreement: PricewaterhouseCoopers LLP and Mr Simon Bradburn