PWC fined for failing to spot black hole at risky lender
The Big Four accountancy firm that gave a clean bill of health to sub-prime lender Cattles shortly before its near collapse has been ordered to pay more than £3m in fines and legal fees.
PricewaterhouseCoopers signed off accounts showing the now defunct FTSE 250 company made annual profits of £165.2m in 2007.
But it later emerged PWC had failed to spot a deep hole in the books – and the company have in fact made a loss of £96.5m that year.
Cattles shares collapsed and eventually were suspended, leaving investors previously unaware of the situation nursing heavy losses.
The Financial Reporting Council, the accountancy watchdog, yesterday fined PWC £2.3m and ordered it to pay £750,000 of legal fees.
The watchdog also fined PWC partner Simon Bradburn £75,600 and issued him and his firm with a ‘severe reprimand’. It said their conduct ‘fell significantly short of the standards reasonably to be expected of them’.
Gareth Rees QC, the executive counsel to the FRC, said the substantial fines imposed reflected the seriousness of the audit failings. The FRC’s report draws a line under a seven-year inquiry into Cattles and the parlous state of its sub-prime loan book in the build-up to the financial crisis.
In February 2009, Cattles announced that publication of its 2008 accounts would be delayed, sending its shares down 74pc in just one day. In the following months, the company said it was in breach of its banking agreements.
Trading in its shares was suspended and PWC resigned as auditors. Two Cattles directors were banned from the City in 2012 for misleading investors about the quality of the company’s loan book.
The FRC accepted that PWC and Bradburn were ‘deliberately misled’ by the company, but said they ‘failed to exercise sufficient professional scepticism’.
A spokesman for PWC said: ‘While the FRC has acknowledged that we had been deliberately misled by third parties, we recognise that certain aspects of this 2007 audit fell short of expected standards.’