REG - Financial RepCouncil - Sanctions against PwC LLP and audit partner

Logistics DevelopmentAnnouncement

29/06/2023 08:15

For best results when printing this announcement, please click on link below:
http://newsfile.refinitiv.com/getnewsfile/v1/story?guid=urn:newsml:reuters.com:20230629:nRSc2823Ea&default-theme=true

RNS Number : 2823E  Financial Reporting Council  29 June 2023

Sanctions against PricewaterhouseCoopers LLP and audit partner

 

29 June 2023

This Press Notice concerns the outcome of an investigation into the relevant
Statutory Auditor(s). It would not be fair to treat any part of this
announcement as constituting or evidencing an investigation into, or findings
in respect of the conduct of, any other persons or entities.

The Executive Counsel of the Financial Reporting Council (FRC) has issued a
Final Settlement Decision Notice under the Audit Enforcement Procedure and
imposed sanctions against PricewaterhouseCoopers LLP and Philip Storer, Audit
Engagement Partner, in relation to the statutory audit of the financial
statements of Eddie Stobart Logistics plc (ESL) for the financial year ended
30 November 2018.

The sanctions are:

Against PwC:

1.   A financial sanction of £3.5 million adjusted for the mitigating
factor of exceptional cooperation and further discounted for admissions and
early disposal to £1,990,625.

2.   Non-financial sanctions, comprising:

a.   a Severe Reprimand;

b.   a declaration that the 2018 audit report did not satisfy the Relevant
Requirements; and

c.   an order requiring PwC to take specified actions to prevent the
occurrence of the contravention.

Against Mr Storer:

1.   A financial sanction of £90,000 adjusted for the mitigating factor of
exceptional cooperation and further discounted for admissions and early
disposal to £51,187.50.

2.   Non-financial sanctions, comprising:

a.   a Severe Reprimand; and

b.   a declaration that the 2018 audit report did not satisfy the Relevant
Requirements.

ESL, a company operating in the supply chain, transport and logistics
business, was listed on the Alternative Investment Market. KPMG performed the
2017 audit and resigned as auditor in 2018, because of a breakdown in their
relationship with ESL's management, following difficulties in obtaining
sufficient appropriate audit evidence. PwC were subsequently appointed for the
2018 audit.

In July 2019, ESL announced that a review had been conducted into its prior
year financial statements. Following this review, in 2020, ESL disclosed
significant prior year accounting adjustments to the 2018 financial year.
PwC and Mr Storer breached Relevant Requirements in some of the areas which
were subject to prior year adjustments.

In summary, the auditors' admitted failings related to the audit work carried
out on:

·    the property transactions entered into by ESL, and the disclosure in
the financial statements regarding those transactions.  These transactions
had a significant effect on ESL's financial performance, and without the
profit generated from them, ESL would have been in a loss-making position;

·    first year audit procedures;

·    dilapidations;

·    accounting for a subsidiary company; and

·    property lease accruals.

There were numerous serious failures in relation to the audit work on ESL's
property transactions, including a failure to identify revenue recognition on
those transactions as a significant risk of material misstatement; failing to
carry out a formal consultation on the technical aspects of accounting for
these transactions; a lack of challenge of management's selection of
accounting policy; and a lack of professional judgement in their work on the
transactions.  Furthermore, the disclosures in the financial statements
failed to adequately explain the impact of the property transactions on ESL's
financial performance.

PwC and Mr Storer assisted in the investigation by making comprehensive early
admissions (including admissions relating to matters which were not in the
communicated scope of the investigation), and this has been recognised in the
discount to the financial sanction of 12.5% (in addition to the 35% reduction
for early settlement) to reflect exceptional cooperation as a mitigating
factor.

Claudia Mortimore, Deputy Executive Counsel, said:

"There were numerous, serious and pervasive failings in this audit. The case
highlights the importance of, firstly, the auditor's work in ensuring that
disclosures in financial statements enable users to understand the impact of
particular transactions on the entity's financial performance, and, secondly,
auditors undertaking formal consultation during the course of the engagement
where appropriate.  The Respondents' exceptional cooperation in the
investigation has been recognised in the discount to the financial sanction."

The Final Decision Notice is available here
(http://www.frc.org.uk/document-library/enforcement/2023/final-decision-notice-against-pwc-and-mr-storer-29)
.

 

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/241860c7-34e0-428c-a17c-82781373cd00/Enforcement-sanctions-imposed-against-Audit-firms-and-Audit-partners-September-2022.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 she may decide whether
to issue a Decision Notice.

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

·      Kate O'Neill, Director of Stakeholder Engagement and Corporate
Affairs, on telephone 07714415229 or email: k.oneill@frc.org.uk
(mailto:k.oneill@frc.org.uk) .

·      Adam Mohamed, Senior Communications Manager, on telephone: 020
3145 9430 / 07920874687 or email: a.mohamed@frc.org.uk
(mailto:a.mohamed@frc.org.uk)

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

This information is provided by RNS, the news service of the London Stock Exchange. RNS is approved by the Financial Conduct Authority to act as a Primary Information Provider in the United Kingdom. Terms and conditions relating to the use and distribution of this information may apply. For further information, please contact
rns@lseg.com (mailto:rns@lseg.com)
 or visit
www.rns.com (http://www.rns.com/)
.

RNS may use your IP address to confirm compliance with the terms and conditions, to analyse how you engage with the information contained in this communication, and to share such analysis on an anonymised basis with others as part of our commercial services. For further information about how RNS and the London Stock Exchange use the personal data you provide us, please see our
Privacy Policy (https://www.lseg.com/privacy-and-cookie-policy)
.   END  IRSSEWEFAEDSEDM