REG - Financial RepCouncil - Sanctions against PwC re audit of Galliford Try

Galliford Try HoldingsAnnouncement

07/06/2022 08:45

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RNS Number : 9600N  Financial Reporting Council  07 June 2022

Sanctions against PricewaterhouseCoopers LLP and audit partner (in relation to
PwC's audit of Galliford Try)

 

       07 June 2022

 

The Executive Counsel of the Financial Reporting Council (the FRC) has issued
a Final Settlement Decision Notice
(https://www.frc.org.uk/getdoc/eb47f70b-1298-437b-acb5-b0d6e87f848e/Final-Decision-Notice-Sanctions-against-PwC-in-(1).aspx)
under the Audit Enforcement Procedure and imposed sanctions against
PricewaterhouseCoopers LLP (PwC) and Jonathan Hook, Audit Engagement Partner
(together, the Respondents), in relation to the statutory audits of the
consolidated financial statements of Galliford Try Plc (the Company), for the
years ended 30 June 2018 (the 2018 Audit) and 30 June 2019 (the 2019 Audit).

 

The following sanctions have been imposed:

PwC:

1)   A financial sanction of £5.5 million, adjusted for
aggravating/mitigating factors (in particular reflecting an exceptional level
of cooperation) by a reduction of 15% and further discounted for
admissions/early disposal by 35% to £3,038,750;

 

2)   Non-financial sanctions, comprising:

a)   a Severe Reprimand; and

b)   a declaration that the Statutory Audit Reports for FY2018 and FY2019
did not satisfy the Relevant Requirements.

 

Mr Hook:

1)   A financial sanction of £150,000 adjusted for aggravating/mitigating
factors (in particular reflecting an exceptional level of cooperation) by a
reduction of 15% and further discounted for admissions/early disposal by 35%
to £82,875.

 

2)   Non-financial sanctions, comprising:

a)   a Severe Reprimand; and

b)   a declaration that the Statutory Audit Reports for FY2018 and FY2019
did not satisfy the Relevant Requirements.

 

At the time of the FY2018 and FY2019 Audits, the Company was one of the UK's
leading housebuilding, regeneration and construction groups. The valuation of
construction contracts was identified as a significant risk in the Audits.
In the 2019 Audit an additional significant risk - that the recognition of
material variations and claims on contracts may not be appropriate - was
identified. PwC and Mr Hook have admitted breaches of Relevant Requirements as
follows:

 

(i) In respect of the Audits, in relation to the audit of the revenue and
costs recognised on a large and complex long term construction contract. The
breaches relate to compliance with applicable accounting standards;
insufficient challenge of management's assertions and lack of professional
scepticism; the sufficiency and appropriateness of audit evidence obtained;
and the extent of documentation included in the audit file.

 

(ii) In respect of the 2018 Audit only, in relation to: (a) the
appropriateness of the Company's accounting treatment for revenue and costs
recognised on three long-term construction contracts; lack of professional
scepticism; sufficiency and appropriateness of the audit evidence obtained and
the documentation of the auditor's considerations; (b) audit documentation in
respect of the appropriateness of transactions with a joint venture being
included in operating cash flows; (c) the selection and testing of
construction contracts; and (d) the documentation and testing of controls over
aspects of the Company's accounting for long-term contracts.

 

The Executive Counsel does not assert that the breaches were intentional,
dishonest or reckless and has taken into account that, since the Audits, PwC
has introduced a number of measures designed to improve the quality of audit
work on long-term contracts.

 

The Company's consolidated financial statements for the year ended 30 June
2020 reflect prior year adjustments and therefore the restatement of prior
year balances. The combined impact of the restatements, net of associated tax
liabilities, was a £94.3 million reduction in net assets and retained
earnings as at 30 June 2018, and £72.4 million as 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. The adjustments had
no impact on the total reported profit for the year ended 30 June 2019, but
represented a 10% reduction in net assets at 30 June 2019. The adjustments
relate to the Company's accounting for revenue and claims associated with
certain long-term contracts, including that noted in (i) above. Not all of the
breaches of Relevant Requirements noted above correspond with matters that
were the subject of the restatements.

 

PwC and Mr Hook provided an exceptional level of cooperation with the
investigation. The early stage at which admissions were made has also been
reflected in the discount applied to the financial sanctions.

 

Claudia Mortimore, Deputy Executive Counsel said:

 

"This is the second Decision Notice published today in relation to PwC's and
Mr Hook's auditing of listed infrastructure and construction companies. The
breaches in both Decision Notices concern failures to properly audit revenue
recognised under specific complex long-term contracts.

 

A non-financial sanction imposed under the first Decision Notice requires PwC
to conduct reviews of its audit work in recent audit engagements of listed
companies, where long-term contracts are prevalent, including a review of the
efficacy of initiatives introduced to seek to improve the quality of audit
work in this area. PwC will report the results to the FRC over two years."

 

The Final Settlement Decision Notice is available here
(https://www.frc.org.uk/getdoc/eb47f70b-1298-437b-acb5-b0d6e87f848e/Final-Decision-Notice-Sanctions-against-PwC-in-(1).aspx)
.

 

Notes to editors:

1.       The FRC's purpose is to serve the public interest by setting
high standards of corporate governance, reporting and audit and by holding to
account those responsible for delivering them. 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.       Past FRC Enforcement Outcomes
(https://www.frc.org.uk/getattachment/bf5523d7-1329-4b58-8d13-091e8ee7cc74/Enforcement-sanctions-imposed-against-Audit-firms-and-Audit-partners-03-09-2021.pdf)
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
(https://www.frc.org.uk/getattachment/26e687a9-05a1-47bd-861d-497b22678c24/FRC-Audit-Enforcement-Procedure_January-2022.pdf)
. 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. The procedure also applies to
matters that have been reclaimed from a Regulatory Supervisory Body by the
FRC.

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.

4.       All media enquiries should be directed to the FRC
communications team:

·    William Boyack, Senior Communications Manager, on telephone: 020 7492
2307/ 07480 210166 or email: w.boyack@frc.org.uk.

5.       If you no longer wish to receive press releases from the FRC
please email unsubscribe@frc.org.uk.

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