Big Four audit firm PwC has been fined £3.5m, reduced to £2.3m after mitigation, for its audit in 2007 of subprime lender Cattles and its subsidiary Welcome Finance.

Simon Bradburn, the PwC partner working on the audit, was fined £120,000, cut to £75,600 following mitigation, and received a “severe reprimand” from the Financial Reporting Council, the UK’s disciplinary body for auditors.

PwC paid £750,000 towards costs.

Cattles brought a lawsuit against PwC alleging negligence over the audit but reached a settlement in October last year.

Gareth Rees QC, executive counsel to the FRC, said: “The substantial fines imposed in this case reflect the seriousness of the audit failings in relation to the critical area of impairment provisioning in a subprime lender and will send a strong signal to the audit community of the importance of upholding high standards of professional conduct in audit work.

“I welcome PwC’s and Mr Bradburn’s constructive approach, which has enabled us to reach this settlement. The admissions of Misconduct have resulted in a significant saving in time and costs and the fines ultimately imposed have been reduced accordingly.”

The ruling from the FRC said: “PwC and Mr Bradburn have admitted that their conduct fell significantly short of the standards reasonably to be expected of a Member Firm and a Member respectively in issuing unqualified audit opinions in respect of the 2007 Cattles and Welcome financial statements in circumstances where PwC (i) had insufficient audit evidence as to the adequacy of the loan loss provision and (ii) had failed to identify the fact that the impairment policy was not adequately disclosed and that the disclosures in those financial statements were not in compliance with IFRS 7.”