The disciplinary case related to PwC’s audits of the financial statements of Cattles and WFS for the year ended 31 December 2007.

The firm and Bradburn have admitted that their conduct fell significantly short of the standards reasonably to be expected in issuing unqualified audit opinions in circumstances where PwC had insufficient audit evidence as to the adequacy of the loan loss provision and, additionally, had failed to identify the fact that the impairment policy was not adequately disclosed and that the disclosures in those financial statements were not in compliance with IFRS 7.

In its particulars of fact, the FRC said PwC and Bradburn gave an unqualified audit opinion in respect of each of the 2007 Cattles and WFS Financial Statements. The 2007 Cattles financial statements showed profit before tax of £165.2m and loans and receivables of £2.8bn. The bulk of those loans and receivables related to WFS.

According to the 2007 WFS financial statements, WFS had profit before tax of £130m and loans and receivables of £2.6bn. In April 2008, following publication of the 2007 annual report and financial statements, Cattles undertook a rights issue which raised some £200m.

Subsequently PwC refused to sign an unqualified opinion on the Cattles financial statements for the year ended 31 December 2008 after its investigations found out about two units within the company holding unimpaired debt, the existence of which had also not been revealed to or identified by the auditors during the course of their 2007 audit work.

The FRC said its investigation found that PwC had failed sufficiently to investigate the unimpaired loan book to establish that the lack of any incurred but not reported (IBNR) or provision in respect of loans subject to forbearance could be supported, in circumstances where PwC knew that Cattles combined a deferred arrears basis for reaching the trigger point with an absence of any provision for debt that was in arrears that had not reached that trigger point.

The regulator stated: ‘The executive counsel accepts as common ground that executive directors and senior management, including qualified accountants, were colluding to conceal from PwC the fact that deferments were being used to hold back and hide impairment. That does not alter the fact that PwC and Mr Bradburn fell significantly short of the standards reasonably to be expected of a member firm and member respectively.’

PwC’s original fine was set at £3.5m reduced to £2.3mafter mitigation and a settlement discount; the firm has also been given a severe reprimand and required to pay £750,000 in costs. Bradburn’s fine was also reduced, from £120,000 to £75,600.

Gareth Rees QC, the executive counsel to the FRC, said: ‘The substantial fines imposed in this case reflect the seriousness of the audit failings in relation to the critical area of impairment provisioning in a sub-prime lender and will send a strong signal to the audit community of the importance of upholding high standards of professional conduct in audit work. 

‘I welcome PwC’s and Mr Bradburn’s constructive approach which has enabled us to reach this settlement. The admissions of misconduct have resulted in a significant saving in time and costs and the fines ultimately imposed have been reduced accordingly.’

In January 2012 an investigation by the then-regulator the Financial Services Authority (FSA) found that the Cattles' 2007 annual report contained ‘highly misleading arrears, impairment and profit figures’.

James Corr, Cattles’ former group finance director, was fined £400,000 by the FSA and banned from carrying out a regulated activity. Peter Miller, WFS’s former finance director, was fined £200,000 and also banned.

Following an FRC investigation, Corr was excluded from membership of ICAS for eight years and Miller banned from ICAEW membership for six years for misconduct.

Last October Cattles and PwC reached a settlement in advance of a High Court case in which the lender claimed the firm’s negligence over the audit led to Cattles incurring £1.6bn in liabilities. Terms of the settlement have not been revealed.

Pwc said: 'While the FRC has acknowledged that we had been deliberately misled by third parties, we recognise that certain aspects of this 2007 audit fell short of expected standards.  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.'