The social housing provider went into administration in 2010, while the FRC fined PwC £5m – its biggest sanction ever – over findings of misconduct. It also severely reprimanded PwC and Stephen Harrison, a retired PwC audit partner, who was fined £150,000.

While the outcome was confirmed on 11 May, it has only now released its case report, showing its working.

In particular, it notes an ‘unauditable’ paper proposed by Connaught Partnerships Limited’s finance operations director, referred to only as Mr A, was not rejected out of hand by the PwC auditors.

The paper proposed an increase in the capitalised mobilisation costs, something the FRC found was ‘highly material to the financial statements of Connaught Partnerships Limited and of the group for the year to 31 August 2009’.

IAS 11 allows mobilisation – the activation of contractors’ physical and manpower resources – costs to be capitalised and amortised over the life of the contract.

Harrison and PwC realised that the paper was essentially unauditable, the regulator found. The group’s salaried staff did not keep time sheets, but even if they had done so, the time sheets would not have referred to the hypothetical typical contract. It would similarly be impossible to enquire of a member of the mobilisation team how much time they worked on a non-existent ‘typical’ contract. In any event, PwC made no enquiry of the members of the mobilisation teams, the FRC found.

Harrison regarded it as unauditable, but did not reject it out of hand. The same applies to audit team members Kevin Davies, senior associate, and Simon Chapman, quality review partner.

In the FRC’s view, Harrison and his team ‘should have regarded it as manifestly flawed’. It depended ‘entirely’ on what purported to be an accurate mobilisation cost of a typical or average contract. Given the wide variety of contracts, varying on duration, expected revenue, housing units involved and contractual terms, it was impossible to see how there could be a typical contract, the report found.

Moreover, no information was provided as to how a typical contract had been arrived at, or what its relevant characteristics were. The paper referred to the experience of ‘live mobilisation cases over the past year’, but it did not identify them or explain how they had been used to arrive at the typical mobilisation cost. PwC did not identify those contracts and therefore could not see whether they justified Mr A’s typical cost.

PwC said in a statement: ‘We are sorry that our work fell short of professional standards. Since 2010 when the case began, we've worked hard to improve our procedures and processes. Audit quality is of paramount importance to PwC and the FRC's annual audit quality assessments have shown a trend of improvement in our work over several years.’

The FRC’s full case report can be read here.