Key facts
- PwC and former partner John Waters were fined over £5.5 million by the FRC for audit failures at Babcock International.
- The FRC found PwC and Waters failed to adequately challenge management and obtain sufficient audit verification.
- The failures led to material restatements in Babcock's 2021 financial statements.
- PwC's fine was reduced to £3.2 million due to cooperation and admissions.
- This marks the second significant fine for PwC related to Babcock's audits.
Professional services giant PwC has been fined over £5.5 million, with the final penalty reduced to £3.2 million following admissions and cooperation, for significant audit failures concerning FTSE 100 engineering firm Babcock International. The Financial Reporting Council (FRC) also sanctioned former PwC partner John Waters with a £59,062 penalty.
The FRC found that during the 2019 and 2020 audits, PwC and Waters failed to adequately challenge Babcock's management on accounting choices and did not respond appropriately to the risks of material misstatement. The regulator also noted a failure to obtain sufficient audit verification across multiple core areas.
These compliance failures, admitted by both PwC and Waters, ultimately led to material restatements in Babcock's 2021 financial statements to correct prior errors. The FRC acknowledged that the audit engagement partner faced challenging circumstances but stressed that the firm and partner should have ensured challenges were addressed and audit work met applicable standards.
This is not the first time PwC has faced penalties related to Babcock's audits. In March 2023, the firm and two former partners were fined nearly £8 million for repeated failures in the 2017 and 2018 audits, including not obtaining crucial contract details that significantly impacted the company's reported revenue.