Two of the UK’s biggest accounting firms are to be investigated over work they did on London Capital & Finance, an investment company that collapsed last year after raising £236m ($294.7m) from ordinary investors.
The Financial Reporting Council (FRC) said on Wednesday it had opened a probe into the auditing of London Capital & Finance.
The investigation will focus on work done by PwC in 2016 and EY in 2017. A third smaller firm, Oliver Clive & Co, will be investigated for its audit in 2015.
The accounting firms could face huge fines if the FRC concludes they fell short in their duty to check the accuracy of accounts.
London Capital & Finance is one of the biggest investment scandals in recent UK history. The company raised £236m selling unregulated and high-risk ‘mini-bonds’ to investors online. The bonds were often wrongfully marketed as ISAs and many investors were unaware of what they were buying. The Serious Fraud Office is investigating the company’s collapse.
The FRC probe does more damage to the reputation of the auditing sector, which has faced growing calls to be broken up in recent years after a string of scandals.
The investigation also adds to the specific woes of PwC and EY, both of which already face investigations into work conducted elsewhere.
Investigations are ongoing into PwC’s work on Eddie Stobart Logistics, which discovered a £2m hole in its accounts last year, and BT, which uncovered a £530m fraud at its Italian business in 2017.
EY faces probes into its work on Thomas Cook, the travel operator that collapsed last year, and NMC Health, the Middle Eastern hospital group that fell into administration earlier this year after discovering $2.7bn of undisclosed debt. EY also worked on Germany’s Wirecard, another business facing a major accounting scandal.
A spokesperson for EY said: “We can confirm that EY has been notified of the FRC’s intention to conduct an investigation into the audit of London Capital & Finance plc for the year ended 30 April 2017.
“We will be fully cooperating with the FRC during their enquiries. It would be inappropriate to comment further at this time.”
PwC and Oliver Clive & Co did not immediately respond to a request for comment.