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Deloitte fined £14m in MG Rover tangle

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9th Sep 2013
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The Financial Reporting Council (FRC) has fined Deloitte a record £14m for failing to manage conflicts of interest in its advice to MG Rover Group.

An independent tribunal has also backed the council’s call for a severe reprimand of the Big Four firm. In July the tribunal found all 13 allegations the FRC had brought against the firm were proven.

Deloitte partner Maghsoud Einollahi was also fined of £250,000 and banned from the profession for three years. The fine will go to the UK Consultative Committee of Accounting Bodies, which pays the costs of FRC disciplinary cases.

Deloitte has repeated its previous statement that it “disagrees” with the tribunal's main conclusions.

“Over the coming weeks, we will continue our discussions with relevant stakeholders and professional bodies about the potentially wide ranging impact on the profession and wider business community of the tribunal findings,” the firm said.

The accounting firm now has 28 days to appeal against the judgment.

After being criticised for being too lenient in the past on accountants, the FRC said the decision will send a strong and clear message to all members of the profession about their responsibility to act in the public interest and comply with their code of ethics.

Executive director for conduct at the FRC, Paul George, said: “The sanctions imposed are in line with the FRC's aim to ensure penalties are proportionate and have the necessary deterrent effect to prevent misconduct and bolster public and market confidence.”

The previous record fine was £1.4m PwC in 2012 after it wrongly said JPMorgan was keeping customer money ring-fenced from its own.

MG Rover was put into administration in 2005 with debts of £1.4bn and the loss of 6,000 jobs. The "Phoenix Four" directors – including advisers Peter Beale, Nick Stephenson, John Edwards and John Towers – had set up the phoenix to buy the company for a token £10 five years earlier.

Deloitte, including Einollahi, had acted as advisers to firms involved with MG Rover and the Phoenix Four, including tax advice while Deloitte audited the carmaker.

Both Deloitte and Einollahi failed adequately to consider the public interest and a potential conflict of commercial interests between the Phoenix Four, MG Rover, associated companies and shareholders.

The tribunal found that Deloitte and Einollahi showed in some instances a “persistent and deliberate disregard of the fundamental principles and statements of the ICAEW’s code of ethics.”

In July Deloitte lost an appeal at the International Dispute Resolution Centre over an FRC tribunal ruling that it failed to manage conflicts of interest in its advice to MG Rover and the Phoenix Four.

Replies (12)

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By User deleted
09th Sep 2013 15:56

Not nearly enough ....

Multiply by 3.5 times and we have a starting point as the basic fine for Deloitte - then add extras such as interest etc.

As for the individuals involved

persistent and deliberate disregard of the fundamental principles and statements of the ICAEW’s code of ethics.

Maghsoud Einollahi was also fined of £250,000 and banned from the profession for three years - (approx 4 months gross salary) How about a fine of 3 years salary equivalent to his 'ban' period? Say £750k * 3 = £2.25m

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By carnmores
09th Sep 2013 16:40

will they just put their fees up

i hope the ICAEW complete a like for like comparison for the next 3 years to check if not the customers will have to pay

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By query
09th Sep 2013 16:43

fine is a joke - way too small

that's not going to teach them!

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By adeelabdullah
10th Sep 2013 10:26

Cosy relationship between management and auditors is hardly a secret so things like independence and professional integrity are good tools for exams, hardly ever seen being applied in true spirit in actual world. Recent efforts by SEC in america and some other countries in terms of audit rotation is lead to BIG4 partners and managers sitting down together, exchanging clients, some even taking up the "Joint Audit" assignments keeping the same audit manager.

I think there is a serious lack of intent in our own profession to clean up, we are just too afraid.

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By djt
10th Sep 2013 11:18

Worrying for Big 4 Corporate Finance Departments

Whatever one's view is on the outcome, it seems extraordinarily unfair commercially that ICAEW member firms are being judged against a framework of self imposed rules, whereas competitors do not need to demonstrate the same standard of integrity.

 

There is clearly a major conflict within mixed discipline practices and ICAEW need to get their act together before there is a mass exodus of professionals prepared to sacrifice their professional qualifications in order to put the bread on the table for their dependants.

 

I hope ICAEW take a firm but fair position in showing public support for a member firm otherwise the organisation may well find itself paralysed by Lady Hodge, the media, parliament and FRC.

 

 

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By DMGbus
10th Sep 2013 13:46

Compensation claims to follow from victims?

If there were any victims as a result of this error of judgment / departure from ethics and professional guidance then I would hope that the regulatory bodies would support compensation claims from any victims who may have suffered losses as a result of the misconduct.

This necessary support to victims provided by the regulatory bodies would demonstrate "public interest" and high moral standards of the profession to those outside the regulated accountancy profession.

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By DMGbus
10th Sep 2013 13:59

"Relevant stakeholders"

I would hope that the "relevant stakeholders" to be consulted by the guilty party will include the victims of their misconduct.

The victims must be the prime consideration.

I would suggest that if an appropriate settlement were to be made with the victims then this could perhaps justify a reduced fine.

On the other hand where a perpetrator maintains a stance of ignorance to acknowledging their offence then the fine might in fact be too low and require enhancement to reflect contempt for professional rules, conduct and image of the profession.

Some of us might be concerned that the perpetrators concept of "relevant stakeholders" is others in the profession who might conduct themselves in a similar way as a matter of course (an ingrained culture thing - selling signatures to please management - auditors who are "pets")  - the arguably corrupt culture of auditors being too pally with management within audit client companies.

The FRC have once again this year shown strength, hopefully they will not be forced to back down by powerful forces (with vested interests) within the profession.

 

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By oldshoremore
10th Sep 2013 14:59

How embarrassing to be 'Chartered' now

These money-grabbing shysters are nothing to do with the once proud Institute we had. They and their lawyer friends dripping in Ferraris and backhanders are gradually getting their come-uppance. Those that failed to find a nosespace in the trough went to fawn at the ICAEW and splattered the institute with cute little earners called 'faculties' or wrote unfathomable tomes on current cost accounting and created UITF'S. (Good grief - whatever was Urgent about accountancy?. Debit is still by the window as it was before the War)   However let us leave them to wallow in their own trough of despond..

Time we had a fresh institute which excludes anyone under 30 and who has never had to pay wages at the end of the month.

I used to be proud of the term Chartered Accountant. I barely whisper it now in public.

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Replying to sergi1234:
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By vstrad
11th Sep 2013 14:45

I think it's the slough of despond ...

... comes from John Bunyan's The Pilgrim's Progress.

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By andrew.hyde
11th Sep 2013 15:30

Slough

Vstrad is right I think.  It means a marsh or bog, and is said to account for the name of the town that Betjeman referred to with such malicious glee.  Some would have you believe that the name comes from the sloe bushes that once grew in the locality.

Hmmm.

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By oldshoremore
13th Sep 2013 10:02

when I say trough I mean it!

bah to plagiarism!  Be your own author - we are free accountants not literary clones..... 

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By andrew.hyde
16th Sep 2013 08:31

Possible remake of The Prisoner?

'I am not a number, I am a CHARTERED ACCOUNTANT!'

Perhaps not.

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