Accounting watchdog widens probe into Babcock audits

The regulator said on Monday that it had started an investigation into the statutory audits for the years ending 31 March 2019 and 2020. It comes on top of the FRC’s ongoing probe into PwC’s audits of Babcock’s consolidated financial statements in 2017 and 2018.

The decision was taken last month following a meeting of the FRC’s Conduct Committee, and followed the outcome of a contract profitability and balance sheet review, commissioned by Babcock.

The UK’s second-biggest defence contractor after BAE first announced the review in January 2021, as new chief executive David Lockwood looked to overhaul the business. The review has resulted in around 140 adjustments in total, worth around £2bn, which related to errors in previous accounts, changes to forecasts and updates to the firm’s accounting policies.

In July the business was pushed to a £1.6bn annual loss after it wrote down the profitability of contracts.

Babcock declined to comment on the FRC probe.

PwC said it would cooperate fully with the FRC in its enquiries, adding: "Audit quality is of paramount importance and we remain committed to our ongoing programme to enhance audit quality."

Babcock announced last year that it would replace PwC as auditor with rival Deloitte. PwC was Babcock’s auditor for nearly 20 years.