The U.K. Financial Reporting Council (FRC) on Monday announced the launch of a new investigation into Big Four audit firm PwC over its statutory audits of British defense contractor Babcock International Group, which took a massive write-down last year.
The FRC is investigating PwC’s work on Babcock’s financials for the fiscal years ended March 31, 2019, and March 31, 2020. The probe is being conducted by the agency’s Enforcement Division.
The decision to investigate was made at a meeting of the FRC’s conduct committee last month following public announcements “regarding the outcome of the contract profitability and balance sheet review commissioned by Babcock,” the FRC stated. That internal review led the company to identify impairments and charges of about 1.7 billion pounds (U.S. $2.3 billion).
The FRC is already investigating aspects of PwC’s audits of the consolidated financial statements of Babcock for the years ended March 31, 2017, and March 31, 2018. Those probes, launched in the aftermath of an audit quality review, remain ongoing.
“We will cooperate fully with the FRC in its inquiries,” said PwC in a statement. “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.”
A spokesman for Babcock said the company does not have any comment on the matter, stating, “It is an issue for PwC and the FRC.”
In March 2021, Babcock appointed Deloitte as its new external auditor. PwC had served the firm since 2002.