On Thursday the Financial Reporting Council (FRC) imposed severe reprimands and fines on PwC and lead audit partner John Waters for serious breaches in the 2019‑2020 audit of defence and aerospace firm Babcock. The regulator cited a failure to exercise adequate professional scepticism, insufficient challenge to Babcock’s accounting approach and a lack of evidence to support the audit. As a result, PwC was fined £3.2 million and Waters £59,000, after the original amounts were discounted for cooperation with the investigation.

PwC had been Babcock’s auditor since 2002, but the contractor switched to rival Deloitte LLP in 2021 following concerns about audit quality. The 2021 restatements of Babcock’s accounts, driven by potential contract cuts, amplified investor unease and highlighted the importance of robust audit procedures for companies with large government contracts.

PwC acknowledged that certain aspects of the audits fell short of the expected standard and pledged that audit quality remains a constant focus. The firm said the recent inspection results underline the need for continuous improvement and that it is committed to enhancing its professional scepticism and evidence gathering.

These fines underscore the regulatory emphasis on audit integrity in the UK’s financial services sector and signal that even Big Four firms face significant penalties for lapses.