U.K. Audit Watchdog Expands Investigation into PwC over Babcock Audits

The United Kingdom’s Financial Reporting Council has expanded its investigation into audits conducted by Big Four firm PricewaterhouseCoopers of Babcock International Group to include the fiscal years 2019 and 2020. The FRC was already investigating the accounting firm’s audits of the U.K. defense contractor in 2018 and 2017, after spot checks found the quality of some audits was poor.

The investigation will be conducted by the FRC’s Enforcement Division under the Audit Enforcement Procedure. The decision was made at a meeting of the FRC’s Conduct Committee in December, following public announcements regarding the outcome of the Contract Profitability and Balance Sheet review (CPBS) commissioned by Babcock. Babcock took a writedown of $2.7 billion last year after an internal review of contract profitability. Babcock also suffered a $2.2 billion loss as a result and saw its shares drop sharply.

PwC Cooperating
“We will co-operate fully with the FRC in its enquiries,” said a PwC spokesperson. “Audit quality is of paramount importance and we remain committed to our ongoing program to enhance audit quality and to the delivery of consistently high-quality audits.

“The FRC’s annual reviews of our audit work, policies, and procedures show a continued trend of improvement in our work and we use their insights, together with our own reviews, to continuously improve how we deliver high quality audits.”

Last year, Babcock removed PwC as its auditor after almost two decades and named Deloitte as its replacement. The extended FRC investigation comes on top of ongoing probes into PwC’s work on Wyelands Bank, BT, and collapsed minibond company London Capital & Finance.