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Jar of money casting a shadow | AccountingWEB | PwC and EY hit with multimillion-pound sanctions
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PwC and EY hit with multimillion-pound audit fines

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The FRC has handed out £7m sanctions - reduced to less than £5m - to both PwC and EY for their roles in the audits of collapsed minibonds business London Capital & Finance (LCF), with the pair having now apologised.

8th May 2024
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PwC and EY have both been hit with multimillion-pound sanctions over the audits of London Capital & Finance (LCF).

Re-registered as a public company in November 2015, the business of LCF involved issuing private bonds to retail investors and lending the proceeds to commercial clients.

In December 2018, the Financial Conduct Authority (FCA) imposed restrictions on its ability to issue or approve further financial promotions before LCF went into administration on 30 January 2019, owing about £237m to 11,625 individual bondholders.

PwC had been brought in to audit the company’s full-year financial statements to 30 April 2016, during which time LCF issued £9.2m in bonds.

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Replies (10)

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By Justin Bryant
08th May 2024 16:02

Where on earth did the £237m go and why can't it be recouped i.e. was there no loan security or was this all a fraud*? That's what I'd like to know (the other Big4 audit fine stuff is just the usual totally unexpected incompetence as we all know).

*allegedly it's fraud: https://www.ft.com/content/43df6551-f6ba-4b4d-aa8c-bd76bc12b737 , https://www.lawgazette.co.uk/news/civil-case-over-237m-collapse-of-londo...

Thanks (2)
Replying to Justin Bryant:
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By SuperAccountingSteve
09th May 2024 11:06

Youre rich enough (subscription cost) to read the FT?

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By FactChecker
08th May 2024 23:53

PwC said: “In the eight years since this work took place, we have made significant changes to our audit methodology, policies and guidance.”

EY said: “We have taken significant steps (since our 2017 audit) to address the issues identified and we are committed to learning from our mistakes.”

Does the FCA not keep a record of these apologia from after each case ... and then ask the question as to "where's the evidence of all this learning & significant changes?"
If none is forthcoming then, instead of these large discounts for saying 'you got me guv', maybe they could start charging a 50% surcharge for the dishonesty ... or more simply, as with probation in the criminal courts, hold over the discounted amount for a period of say 5 years.

Thanks (6)
Replying to FactChecker:
Pile of Stones
By Beach Accountancy
09th May 2024 20:45

Yes, because there were no audit ****-ups before 2016 were there, so the audit firms couldn't have possibly learnt from their earlier mistakes by then.

Maybe if each partner of the entire firm had to pay their share of the fine in person then maybe there would be more focus on doing a proper job...

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By listerramjet
09th May 2024 09:45

3 different firms guilty of the same sin? Sounds highly suspicious to me! Wondering out loud the significance of potential conflicts between accounting standards and risk with regard to provisioning against unknown future losses. Also how such a business could pass a going concern review given its small size and likely risk profile. Perhaps the professional judgement would be to get a longer barge pole?

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By JustAnotherUser
09th May 2024 10:08

Nearly a decade ago
£105,000 fine for a Partner
"PwC will pay its UK partners an average of £906,000"
This partner has ben a partner for several years so I suspect they would sit above the average.

I wonder if even an eyelid was batted when they woke up this morning. I also wonder how this fine is paid, paid in bulk or maybe they can stick it on Klarna /s

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By SuperAccountingSteve
09th May 2024 11:15

Sounds like a ponzi scheme, targeting members of the public, and somehow PWC/E&Y got themselves snared in it. We all have to pay though, PWC/E&Y just make sure their fees are high enough to cover these fines.

Diversity, Equity and Inclusion will only make matters worse, i.e. audit teams recruited to tick boxes / meet bonus targets, and deal with the downstream problems (like incompetence) later.

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By Sheepy306
09th May 2024 12:15

My initial response to reading there were 8 breaches would be the assumption that it all relates to just 1 issue, so the other 7 are a technicality........but no. Breaches of related parties, going concern, auditing of prepayments, loan debtors.......surely this is basic auditing isn't it? Surely also there would have been senior auditors, managers, initial partner review, possibly 2nd audit partner review all looking at the audits before they were signed off. And then for exactly the same to have been repeated again by another top firm beggars belief, over several years. Just goes to show the default standard of auditing undertaken. Given also that we only hear about the high profile failures which have been discovered because a company has gone into liquidation, what happens when ICAEW or ACCA conduct cold file monitoring reviews.......surely these same basic issues are identified in those files?

Presumably "we have taken significant steps to address the issues" means sending the audit team on a 'Auditing - an introduction' course or a 'Professional Ethics and audit culture' course, that might be a start.

Don't get me wrong, auditing can be a technically complex job sometimes, and the resources required are beyond what a small firm realistically can provide (Oliver Clive & Co) but thats why the top firms charge the fees they do and (supposedly) have numerous skilled auditors working on these jobs, any of whom could have identified and flagged these issues up.

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By Twickers Call
09th May 2024 18:52

The two named auditors PWC and EY are not bothered. They will get paid from their Indemnity.
Insurance Premiums will go up. Then poor clients have to pay their increased premium through audit fees.
It is not a good punishment.

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By Payroll Pete
10th May 2024 09:57

This is why all accountants need to be qualified!!!

Big four stick spreadsheet graduates with no real experience into audits to tick boxes, and tick boxes they will do.

What they won't do is threaten the revenue flow.

LCF was a massive fraud which should have been spotted a mile away from a cursory review of the business model.

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