The fines are in relation to the audits of Babcock’s accounts ending in the financial years 31 March 2017 and 31 March 2018, and Devonport Royal Dockyard Limited (DRDL) (a subsidiary of Babcock) for FY2018. Nicholas Campbell Lambert was the audit engagement partner for Babcock, and Heather Ancient was the audit engagement partner for DRDL.

The FRC investigation concerned a number of areas of the audits, including seven long-term contracts, comprising approximately 25% of the FY2018 Babcock group revenue.

Numerous, serious breaches were admitted by the respondents. Breaches were identified in respect of every area of audit investigated and included:

• Repeated failures to challenge management and obtain sufficient appropriate evidence, reflecting a general reluctance to challenge management across these parts of the audits;
• Examples of a failure to follow basic audit requirements, evidencing a lack of competence, care or diligence. For example, there was no evidence that the audit team had, whether in FY2018 or before, obtained and read a 30-year Public Private Partnership contract with FY2018 revenue of c.£77m and lifetime revenue of £3 billion, and one contract - with an initial value of c.€640m - was written in French, but the audit team neither possessed French language skills nor obtained a translation of the contract.

The initial £7,500,000 fine has been adjusted by 25%, so that the financial sanction payable is £5,625,000. PwC has also been required to pay the costs of the investigation.

For the Babcock audits Mr Campbell Lambert has been fined £200,000, adjusted down to £150,000. Ms Ancient has been fined £65,000, adjusted to £48,750.

Claudia Mortimore, Deputy Executive Counsel, said: “The quality of these audits fell far short of the standards expected of statutory auditors. Of particular concern is the lack of scepticism applied and the failures to follow some basic audit requirements.

“This robust package of sanctions seeks to deter future breaches and encourage improvement by the firm., in circumstances where PwC has now been sanctioned four times since 2019. The financial sanctions have been reduced by 25% to reflect the admissions made and the settlement reached.

“PwC conducted effective self-reviews into four of the areas under investigation, and in this respect exhibited exceptional cooperation. However, this has not attracted a further discount to sanctions, as it was countered by examples of errors, omissions and delays in providing material to the investigation, as well as the provision of some unclear or inaccurate responses.”

A PwC spokesperson said: “We’re sorry that the work in question was not of the standard required and that we demand of ourselves.

“In the years since, we have made significant and continuous investment in strengthening audit quality, which has been borne out through improved inspection results. We are focused on ensuring the consistent delivery of high quality audits.”

An FRC’s investigation into PwC’s statutory audits of the FY2019 and FY2020 Babcock group financial statements is still ongoing.