PwC and other ICAEW members are to be investigated by the Accountancy and Actuarial Discipline Board in relation to the audit of mid-tier firm RSM Tenon Group.
According to the AADB, the investigation will focus on the preparation, approval and audit of the financial statements of RSM Tenon Group and its subsidiary companies for the June 2010 and 2011 year ends.
The board will also look into the preparation, approval and review of financial information in connection with the admission of RSM Tenon Group plc to the main market of the London Stock Exchange and the acquisition of RSM Bentley Jennison.
News of the investigation follows several difficult months at the AIM-listed firm. RSM Tenon issued a shock profit warning in January, also revealing that its last full-year accounts would have to be restated. The firm also saw the sudden departure of CEO Andy Raynor and chairman Bob Morton.
In February, RSM Tenon reported a £84m first-half loss after a £61m writedown on goodwill. It admitted to 'significant errors' in its last full-year financial statements, including in the way it accounted for employee bonuses and revenues from some contracts.
At the time, the firm's financial director, Adrian Gardner - who was appointed in October 2011 - explained that after he came on board and began his review, he realised quite quickly that 'there were things in the balance sheet that I wasn't quite expecting to see because of some accounting errors.'
Among the accounting issues he encountered was that of accruals, which were inadequate in the area of employee bonuses. In addition, the firm had erroneously recognised some income from older contracts sooner than it should have. An incorrectly recorded lease also affected the change in accounting, along with the accounting for costs in the sector of the business dealing with case referrals in the recovery and turnaround practice.
Auditors PwC then pronounced an 'emphasis of matter' note on the firm's six-month update, based on doubts over its ability to continue as a going concern.
'These continuing facilities, for which heads of terms have been agreed but which are subject to completing the necessary documentation, are for £88m. Should the Lloyds Banking Group not agree to provide new long term facilities at 31 October 2012, the debt could be called for immediate repayment, which would result in the Group no longer being a going concern.
'These conditions indicate the existence of a material uncertainty which may cast significant doubt on the Group's ability to continue as a going concern. The consolidated interim financial information does not include the adjustments that would result if the Group was unable to continue as a going concern,' PwC said.
In April the AADB hinted at a full inquiry upon disclosure that it had been probing PwC's audit work for RSM Tenon.
PwC has vowed to defend itself, saying: 'We will be cooperating fully with the AADB investigation. We will be vigorously defending our audits and other work carried out for the RSM Tenon Group.'
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