The Financial Reporting Council (FRC) investigation into PwC’s audit of Redcentric has now been expanded, with news the regulator is to investigate the conduct of an individual as well as the firm
The FRC has announced it has begun an investigation under the accountancy scheme into the conduct of a member in relation to the preparation and review of financial information relating to Redcentric plc for the financial years ended 31 March 2015 and 2016. The individual is not named.
Previously, at the end of February, the FRC announced it had opened an investigation into PwC’s audit work for the same period, under its audit enforcement procedure.
Last year the AIM-listed IT managed services provider revealed an internal investigation by its audit committee had uncovered ‘misstated accounting balances’, which meant it delayed reporting interim results for the six months ended 30 September 2016.
At the time, Redcentric said it has served notice on its CFO, Tim Coleman, and placed him on garden leave with immediate effect. He was then replaced by Peter Brotherton.
A subsequent independent forensic review by Deloitte and Nabarro found that: ‘To date there has been no evidence of theft and the misstatements are attributable to profit overstatement over a number of years with revenues being overstated and costs understated in broadly equal proportions.’
The review put the cumulative overstatement of net assets and profits after tax up to 30 September 2016 at approximately £20.8m, and said that approximately £5.9m of this misstatement (£4.7m at the EBITDA level) arose in the six months ended 30 September 2016. The remaining £14.9m misstatement relates to periods prior to and including the year ended 31 March 2016.
When it announced its investigation into PwC, the FRC said it would look at, but not be restricted to, issues regarding misstated accounting balances.
In March, Financial Conduct Authority (FCA) notified Redcentric that it had also commenced an investigation following the historic overstatement of net assets and profits as described in the company's announcements on 7 November 2016, 13 and 23 December 2016.
At the time the company said: ‘Redcentric will co-operate fully with the FCA and other relevant authorities concerning this matter.’
According to the 2016 Redcentric annual report, PwC was paid a total of £180,000 during the year, which included £30,000 for the audit of the parent company, £96,000 for auditing its subsidiaries and £54,000 for tax and compliance services.
KPMG took over as the group’s auditors in May 2017.
