Audit firm PwC have been fined £4.5 million by the Financial Reporting Council (FRC) for the defective audits of Redcentric (RCN) in 2015/2016. Two audit partners at the firm were also fined £140,000 each.
Redcentric is an IT services company which had to restate its accounts when a £20 million hole was discovered. Assets were written down and the profit of £5.3 million in 2016 was restated to be a loss of £4.2 million. Professional scepticism by the auditors was apparently missing so that management were able to present fictitious figures and get them through the audits.
The current Chairman of Redcentric appears to be reluctant to pursue legal action on behalf of shareholders against PwC which is surely unfortunate. Shareholders would have difficulty in pursuing an action for their losses directly because of the Caparo legal judgement, but a “Derivative” action can be pursued I suggest.
But this is yet another case where the audit profession has failed to pick up serious defects in the accounts of a company. It’s yet another example of why the audit profession needs to improve its game to meet the reasonable needs of investors and other stakeholders.
I have never held shares in this company but I feel for those who were duped by the company and its management into investing in it.
Roger Lawson (Twitter: https://twitter.com/RogerWLawson )
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