PwC probed over its auditing of collapsed property group Intu

PwC is under investigation by UK regulators over its auditing of the failed shopping centre owner Intu Properties, as accountants brace for increased scrutiny of their work ahead of an expected rise in insolvencies.

In its fifth outstanding probe into PwC’s work for British companies, the Financial Reporting Council is investigating the firm’s audits of the 2017 and 2018 accounts of Intu, whose shopping mall business collapsed at the height of the coronavirus pandemic in 2020.

The FRC is already examining PwC’s work signing off the accounts of Babcock, Wyelands Bank, London Capital & Finance and Eddie Stobart Logistics.

The UK’s big accounting firms remain dogged by questions over the quality of their work, particularly for clients that have now collapsed.

Other FRC probes into the audits of companies that subsequently became insolvent include café chain Patisserie Valerie and outsourcers Carillion and Interserve.

“We are at the point in the cycle where we expect more companies to fail, and the pressure on management and directors to act appropriately will be significant,” said Michael Izza, chief executive of the ICAEW, the accounting professional body. “Auditors are very conscious of this.”

Auditors are already the subject of heightened scrutiny. The FRC imposed a record £46.5mn of fines in the 12 months to March 2022, mostly on the Big Four of PwC, Deloitte, EY and KPMG.

PwC, whose partners received a record average profit share of more than £1mn each last year, was fined twice in one day last June when it was ordered to pay £5mn for failings at construction and outsourcing companies Kier and Galliford Try. It was also ordered to pay £1.75mn for problems in its auditing of telecoms group BT.

Intu, whose malls included the Trafford Centre in Manchester and Lakeside in Essex, was once the UK’s biggest shopping centre owner and reached a peak market valuation of £4.9bn in early 2015.

A huge debt pile and a shift away from bricks-and-mortar retail contributed to its decline in fortunes. It called in administrators from KPMG in June 2020 as the effect of the pandemic pushed the company over the precipice.

PwC had audited Intu, previously named Liberty International, for almost four decades before stepping down at the end of 2018.

It was replaced in 2019 by Deloitte, which flagged a material uncertainty about Intu’s ability to continue as a going concern.

PwC said it would co-operate fully with the FRC’s inquiry. “Delivering consistently high-quality audits remains our primary focus and we continue to make significant investment in our audit practice,” it said.

There was no causal link between the area of the audit being investigated and Intu’s eventual collapse, said a person familiar with the matter.

The investigation is focused on PwC and not Intu. The FRC has no power to investigate company directors for failing to prepare proper financial statements unless they happen to be accountants.

The investigation is being carried out under the FRC’s audit enforcement procedure, meaning any fine against PwC would be paid to the Treasury.

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