The ICAEW has reprimanded and fined a rash of firms for issuing unqualified audit reports.
As revealed in the December ICAEW disciplinary orders, three firms were slapped with severe reprimands along with fines and costs of more than £10,000 for issuing the reports.
Many of the cases go back prior to 2011 when the audit threshold was lower. With the threat of the threshold going up even further, and with added pressure from accounting bodies as demonstrated in the last few months of disciplinary orders, fewer small firms are likely to continue offering audit services.
AccountingWEB asked the Institute whether it was part of a longer-term trend and if it was stepping up enforcement of unqualified audit reports. An ICAEW spokesperson declined to comment.
The first firm called up before the disciplinary committee was Beever and Struthers, which issued reports as independent auditors when no audit work was performed. The firm was severely reprimanded, fined £3,250 and had to pay costs of £7,680.
According to the disciplinary orders Beever and Struthers issued reports as the independent auditors in respect of the service charge accounts of ‘X Limited’ for the years ended 31 July 2007, 2008, 2009, 2010, 2011 and for the five months ended 31 December 2011, when the basis of the opinion of the report said the firm’s examination of the accounts was conducted in accordance with International Standards on Auditing when no audit work was performed.
In addition, insufficient evidence was obtained and documented to support the firm’s opinion which stated that the service charge accounts showed a fair summary of the state of affairs of the scheme.
Business Focus & Systems of Otley, West Yorkshire, was also reprimanded, fined £6,000 and had to pay costs of £4,442 for issuing an unqualified audit report.
In February 2013 the firm issued the report for the financial statements of ‘X Limited’ for the year ended 30 September 2011, and was in breach of Audit Regulation 3.10.
It had failed to report details of material weaknesses in the firm’s system of internal control over transactions in accordance with the Industrial and Provident Societies Acts 1965-2002.
The audit was also not undertaken in accordance with International Standard on Auditing 570 ‘going concern’ as it failed to consider and document properly its evaluation of the credit union’s ability to continue as a going concern.
Finally Frank Dongworth, on behalf of his firm in Hertfordshire, issued an unqualified audit report.
He was severely reprimanded, fined £5,000 and had to pay costs of £2,600 for issuing an unqualified audit report on the financial statements of ‘Y plc’ for the year ended 31 December 2010 in breach of audit regulation 3.10.
The audit had not been conducted in accordance with the following International Standards on Auditing:
- ISA 230 ‘Audit Documentation’ - the auditor failed to prepare, on a timely basis, audit documentation that provides a sufficient and appropriate record of the basis for the auditor’s report
- ISA 300 ‘Planning an Audit of Financial Statements’ - the audit was not planned so that the engagement could be performed in an effective manner
- ISA 500 ‘Audit Evidence’ - the auditor failed to obtain sufficient appropriate audit evidence to be able to draw reasonable conclusions on which to base the audit opinion
Dongworth also inaccurately completed the 2012 annual return for his firm, ‘X & Co’.