The Financial Reporting Council (FRC) has issued a financial sanction of £5.5m against PricewaterhouseCoopers LLP (PwC) and its audit engagement partner, Jonathan Hook, in relation to the audits of Galliford Try Plc for the years ended 30 June 2018 and 30 June 2019.
According to the FRC, there were failures in relation to the audit of the revenue and costs recognised on a “large and complex long term” construction contract. PwC and Hook have admitted breaches of relevant requirements.
The breaches relate to compliance with applicable accounting standards, insufficient challenge of management’s assertions, the lack of professional scepticism, the sufficiency and appropriateness of audit evidence obtained, and the extent of documentation included in the audit file.
However, PwC’s sanction was reduced by 15% for aggravating/mitigating factors following an “exceptional level” of cooperation, and further discounted for admissions/early disposal by 35% to £3m.
Hook was also hit with a financial sanction of £150,000 which was adjusted for aggravating/mitigating factors and further discounted by 35% to £82,875 for admissions/early disposal.
Both PwC and Hook have also received a severe reprimand and a declaration that the statutory audit reports for FY18 and FY19 did not satisfy the relevant requirements.
Galliford Try Plc is a housebuilding, regeneration and construction group. The valuation of construction contracts was identified as a “significant” risk in the audits. In the 2019 audit, an additional risk that the recognition of material variations and claims on contracts may not be appropriate was identified.
The combined impact of the restatements, net of associated tax liabilities, was a £94.3m reduction in net assets and retained earnings at 30 June 2018, and £72.4m at 30 June 2019. The adjustments represented a 22% reduction in the total reported profit and a 12% reduction in net assets for the year ended 30 June 2018.
PwC told Accountancy Today: “We are sorry that aspects of our work were not of the required standard. Since these audits were completed we have invested heavily in an ongoing programme to strengthen audit quality, which has included measures to support the audit of long term contracts.
“We have seen the positive impact of the actions we’ve taken through improved inspection results and other quality indicators over recent years, and we remain committed to the delivery of consistently high quality audits.”