Firm penalised

PwC fined £5m for construction audit failings

Aberdeen bypass by-pass
A legal claim related to the Aberdeen bypass project should not have been treated as an asset

PwC and one of its London partners have been fined more than £5m for their audit of two stock market listed construction companies.

The Financial Reporting Council (FRC) said that PwC and audit engagement partner Jonathan Hook would also face severe reprimands.

PwC was penalised over failures to properly audit revenue recognised under complex long-term construction contracts concerning Kier Group and Galliford Try.

In its final decision notices, published today, the FRC criticised the auditor for its “lack of professional scepticism”.

Galliford Try, which builds roads and bridges, had to restate its accounts two years ago after the regulator decided that it should not have recognised an £80 million legal claim related to the Aberdeen bypass project as an asset.

PwC was replaced by BDO in 2019 after 20 years as Galliford Try’s auditor.

In March 2019 Kier told its investors that there had been an accounting error, with net debt £50 million more than it had previously thought. PwC has audited the firm’s accounts since 2014 and remains in place.

Claudia Mortimore, the FRC’s deputy executive counsel, said: “Rigorous auditing of long-term contract accounting is particularly important in the audit of construction companies, where many contracts are spread over a number of years.

“Auditors must not only ensure that they obtain sufficient appropriate audit evidence to support the accounting of the contracts, but also apply sufficient professional scepticism. This is vital so that investors can have confidence in the financial statements.”

The FRC fined PwC £3.35m – reduced to £1.95m for early cooperation – for its audit of Kier for the financial year ended 30 June 2017. It was also fined £5.5m – reduced to £3m – for its audits of Galliford Try for the years ended 30 June 2018 and 30 June 2019.

Mr Hook, lead partner on the audits of both Kier and Galliford, was fined a combined £240,000, reduced to £136,000. He was global leader of its construction and engineering practice and retired last summer.

In a statement, PwC said: “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.”

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