Save content
Have you found this content useful? Use the button above to save it to your profile.
iStock_pitr134_AE

FRC summons Deloitte over Aero audit

by
20th Apr 2016
Save content
Have you found this content useful? Use the button above to save it to your profile.

The Financial Reporting Council (FRC) has announced that it will consider a formal complaint against Deloitte and Deloitte partner John Clennett at a disciplinary tribunal next month.

The tribunal relates to the auditing of AIM-listed aeroplane parts wholesaler Aero Inventory, which went into administration in November 2009 after its shares were suspended when issues concerning stock valuation came to light.

In an FRC statement announcing the hearing it was alleged that the conduct of Deloitte and Clennett fell “significantly short of the standards reasonably to be expected of them”, and that they failed to comply with the requirements of the International Standards on Auditing. 

The hearing is the result of an investigation launched back in 2011 by the Accountancy and Actuarial Discipline Board, which scrutinised those involved in the preparation, approval and audit of the financial statements of Aero Inventory and its subsidiary Aero Inventory (UK) for the years ended 30 June 2007 and 30 June 2008.

In October 2009 Aero said it was unlikely to deliver to its bank lenders the 2009 audited accounts within the time permitted, resulting in a breach of a non-financial covenant in those agreements.

In November that year the company was placed into administration with KPMG as administrator. The following year it applied to the courts for a two-year administration period extension.

In January 2015 the FRC launched an investigation into Aero finance director Hugh Bevan, its auditors Deloitte and audit engagement partner John Clennett in connection to the audit and preparation of the financial statements of Aero and a subsidiary between 2006 and 2007.

In July 2015 Bevan was barred from the profession for three years and fined £170,000. He admitted that his conduct fell significantly short in several key areas. This included breaching the ICAEW's principles of integrity and performance by including, within the financial statements for the financial year ended 30 June 2006, revenue and profit from the Garuda Transaction, being reckless as to whether the transaction had taken place in that year.

He failed to report to Aero Inventory's board that if the Garuda Transaction should be included in the 2006 statements it should be reported as an exceptional item, and also due care in applying the ‘straight line discount’ to stock acquired under certain bulk purchase contracts.

The impact of this was that the accounts did not show a true and fair view of the true state of affairs of Aero Inventory as of 30 June 2006, 30 June 2007 and 30 June 2008.

The Garuda Transaction comprised an agreement reached on 29 June 2006 by which Aero purchased an aircraft parts inventory from PT Garuda Indonesia, the flag carrier of Indonesia, for a purchase price of US$34m and an agreement reached on the same day by which Aero immediately re-sold to GMF AeroAsia for a purchase price of US$23m some of the inventory which Aero had acquired from Garuda. GMF was a 99% owned subsidiary of Garuda.

The hearing will take place at the International Dispute Resolution Centre in London and will start on 9 May.

Replies (0)

Please login or register to join the discussion.

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