Journalist
Share this content

Deloitte and partner rapped for lax pension audit

Deloitte and a former partner at the firm have been fined and reprimanded by the Financial Reporting Council (FRC) for breaches related to the audit of an unnamed client.

18th Nov 2020
Journalist
Share this content
Deloitte fined for pension audit bungle
iStock_Deloitte_Andrei Stanescu

The FRC punished Deloitte with a six-figure sum for failing to properly audit cash held in a pension scheme along with the value of its assets in a 2015 audit of the unnamed publishing company.

The regulator added that the respondents had failed to ensure that the review work carried out by the Engagement Quality Control Reviewer (EQCR), which is designed to provide an objective evaluation of an engagement, was adequately documented

The FRC decision said that the respondents also failed to obtain sufficient appropriate audit evidence in respect of its stress testing of the company’s impairment model.

The regulatory notice did not question the truth or fairness of the 2015 financial statements, and concluded that the breaches were “not intentional, dishonest, deliberate, or reckless”.

Nevertheless, Deloitte was sanctioned with a £362,500 fine, reduced from £500,000 for admissions and early settlement, for the breaches which occurred to the year ending January 2, 2016.

The Big Four firm was also handed a non-financial penalty requiring it to prepare a progress report for the scrutiny of the FRC's audit quality review team. It must set out its current EQCR work programmes and explain how that work is documented during the course of the audit of Public Interest Entities.

A disciplinary reprimand was imposed against the former partner involved in the audit, who was also unnamed. All respondents must pay the FRC executive counsel’s costs of the investigation as part of the settlement.

“The proportionate sanctions reflect the failures by the respondents to obtain sufficient appropriate audit evidence and to properly document work in significant areas of audit risk, but also recognise the limited nature of the breaches, which did not call into question the truth or fairness of the financial statements,” said Claudia Mortimore, deputy executive counsel to the FRC.

A Deloitte spokesman said: “We acknowledge and regret that aspects of our audit work for this entity did not comply with the relevant standards. However, as the FRC has recognised, these did not call into question the truth or fairness of the financial statements in question. Audit quality remains our priority and we continue to enhance our audit quality processes and to seek improvement across all of our work."

Who was the client?

The FRC’s decision notice, which redacted the subject of the audit, stated that the listed company “was one of the largest local and regional multimedia organisations in the UK responsible for operating 236 publications and 203 websites”. The FRC notice said the company “had a market capitalisation of approximately £43m” in 2016.

According to The Financial Times, however, the unnamed client was Johnston Press, publisher of the i, The Scotsman, and the Yorkshire Post. The company was traded on the main London Stock Exchange until 2018, when it was delisted following a controversial takeover.

The publisher went into administration in November 2018 after no buyers could be found who would pay the £220m debt it carried.

The FRC’s decision not to name the subject of the audit was questioned by industry experts. Labour peer Lord Sikka, emeritus professor of accounting, said the regulator’s actions meant “stakeholders can’t ask questions about audit quality” in such cases.

“There is a worrying trend emerging that does not show that the accounting regulator is embracing the public accountability and transparency it ought to be,” he said. “The stakeholders of any entity subject to accounting problems need to be aware.”

The fine is the latest in a year of ignominy for the Big Four, whose multiple high-profile audit failures in recent years have resulted in a regulatory crackdown.

In September, Deloitte landed a record £15m fine and was severely reprimanded by the FRC for “serious and serial failures” in its auditing of software company Autonomy.

Replies (0)

Please login or register to join the discussion.

There are currently no replies, be the first to post a reply.