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The Financial Reporting Council (FRC) has issued a Final Decision Notice under the Audit Enforcement Procedure and imposed sanctions against PricewaterhouseCoopers LLP (“PwC”), and two partners Jaskamal Sarai and Arif Ahmad, in relation to the statutory audits of the financial statements of Redcentric plc for the financial years ending 31 March 2015 (“FY2015”) and 31 March 2016 (“FY2016”).

The sanctions are:

PwC

1. A fine of £6,500,000 (discounted to £4,550,000 for admissions and early disposal);
2. A Severe Reprimand;
3. A condition that PwC supplement the monitoring and support of the Leeds Office audit practice on terms which have been agreed with the FRC; and
4. A declaration that the Statutory Audit Reports did not satisfy the Relevant Requirements.

Mr Sarai (in respect of FY2015 only):

1. A fine of £200,000 (discounted to £140,000 for admissions and early resolution); and
2. A Severe Reprimand.

Mr Ahmad (in respect of FY2016 only):

1. A fine of £200,000 (discounted to £140,000 for admissions and early resolution); and
2. A Severe Reprimand.

In addition, training has been undertaken by Mr Sarai and Mr Ahmad in relation to compliance with the requirements of ISA 220, as it relates to supervision of the engagement team and the application of professional scepticism in accordance with ISA 200.

The Respondents each admitted the breaches prior to the issue of the Final Decision Notice and received a discount of 30% in relation to the fines.

The breaches of Relevant Requirements were numerous and in certain cases were of a basic and/or fundamental nature, evidencing a serious lack of competence in conducting the statutory audit work. A number of the breaches relate to the auditors’ failure to exercise professional scepticism, which is at the heart of auditors’ work.

Claudia Mortimore, Deputy Executive Counsel to the FRC, said,

“The sanctions reflect the seriousness and extent of the breaches. Professional scepticism was lacking in this audit. Had it been applied, it is likely that certain material misstatements would have been detected. As this is the second Final Decision Notice involving PwC Leeds’ office in recent years, we have mandated that the firm supplements its ongoing monitoring and support for that office, to further improve the quality of audit work in the future.”

The Final Decision Notice, edited for publication, is published here.

Notes to editors:

1. The FRC’s mission is to promote transparency and integrity in business.  The FRC sets the UK Corporate Governance and Stewardship Codes and UK standards for accounting and actuarial work; monitors and takes action to promote the quality of corporate reporting; and operates independent enforcement arrangements for accountants and actuaries. As the competent authority for audit in the UK the FRC sets auditing and ethical standards and monitors and enforces audit quality.
2. An updated list of enforcement cases and sanctions can be found here
3. To meet its responsibility as the competent authority in respect of audit enforcement, the FRC operates the Audit Enforcement Procedure. This procedure applies to the investigation and sanctioning of breaches of the various requirements of the statutory auditors of Public Interest Entities (PIEs) and any other cases retained by the FRC including AIM companies with a market capitalisation in excess of €200m.

In brief, the stages of the Audit Enforcement Procedure are: 

• Initial case examination and decision to investigate
• Investigation
• Decision by Executive Counsel as to whether to issue a Decision Notice (a notice with the findings and recommended sanction);
• Referral to Enforcement Committee and decision by the Enforcement Committee whether to issue a Decision Notice; and
• Referral to a Tribunal
• In order for a matter to be referred for investigation by the FRC’s Executive Counsel under the Audit Enforcement Procedure, the FRC’s Conduct Committee is required to decide whether there is good reason to investigate an Allegation in relation to a Statutory Auditor and/or a Statutory Audit Firm.

Investigations are usually conducted by Executive Counsel and the Enforcement division. The FRC’s Conduct Committee may direct that the investigation is delegated to a Recognised Supervisory Body (RSB) which will provide an investigation report to the Executive Counsel so that (s)he may decide whether to issue a Decision Notice.

Contact the Press Office

William BoyackCommunications Manager

• +44 020 7492 2307
• w.boyack@frc.org.uk