Editor AccountingWEB
Share this content
Grant Thornton
istock_Grant-Thornton_Derick Hudson

Grant Thornton fined for Interserve audit failings

by

Grant Thornton has been hit with a severe reprimand and a £700,000 fine by the accounting watchdog after failures in the audit of the global construction and support services firm Interserve. 

1st Nov 2021
Editor AccountingWEB
Share this content

Only six weeks after getting a £2.5m fine for its audit of Patisserie Valerie, Britain’s sixth largest accountancy firm is once again facing a financial sanction from the Financial Reporting Council (FRC). 

Grant Thornton has been fined £718,250 - reduced down from £1.3m - and severely reprimanded after the FRC found there were serious evidence and scepticism failings by the auditors in the audit of Interserve. 

Simon Lowe, the then senior statutory auditor on the audit engagement, was also reprimanded by the FRC and fined £70,000, which was then reduced to £38,675. Lowe is now a consultant at the firm after leaving the audit side of the business in 2018. The Interserve FY17 was his last audit following a 43-year career in the profession.

The regulator noted that the accountancy firm and Lowe provided “exceptional co-operation” in the investigation and made early admissions. 

Claudia Mortimore, deputy executive counsel to the FRC, said: “This is a proportionate package of sanctions in respect of failings over three consecutive audit years.  It reflects on one hand the seriousness of certain evidence and scepticism failures in FY 2015 and FY 2016, while recognising that the adverse findings were limited to discrete areas of large audits.”

Adverse findings

Interserve, which was a high-profile business with a number of public-sector clients, collapsed into admission on 15 March 2019. But in the financial year 2017, the outsourcing outfit was riding high with a reported total revenue of £3.2bn and a profit before tax of £244.4m with 55,350 people employed worldwide.  

Due to the number of public-sector clients, the FRC said there was “significant public interest” in the audit conducted. 

The regulator flagged adverse findings in the audit work on the forward loss provisions in the financial statements for FY 2015 and FY 2016 against a contract for the construction of a waste treatment facility in Glasgow. 

FRC said in the final notice that the contracts had been identified as a “significant risk in the audit plan” and the estimated losses in the Glasgow contract were substantial. 

“The audit evidence obtained by Grant Thornton did not adequately support key judgments and accounting estimates made by the [Interserve]. In some instances, the evidence was absent; in others it was of poor quality; in others the evidence directly pointed against recognition of certain amounts by the [Interserve].”

The regulator also raised a red flag around the audit team’s assessment of the company as a going concern and goodwill impairment in the financial statements for FY 2017, after  having been identified, at planning stage, as areas of significant risk for the audit.

The FRC did not assert that any of the breaches resulted in the financial statements being materially misstated and the breaches were limited to discrete areas of the audit.

The final notice made efforts to praise Lowe and Grant Thornton for their exceptional level of cooperation and how they have demonstrated contrition and have apologised for the breaches. 

Non-financial sanctions

Alongside the financial sanctions, Grant Thornton must also report to the FRC on its monitoring programme of the quality of audit work on loss-making contracts. 

However, the final notice notes that the firm has already introduced a formal policy relating to use of experts on going concern and has developed a loss-making contract methodology with an on-going monitoring programme.

The last time Grant Thornton crossed paths with the FRC it was chastised for “a serious lack of competence” in the audit of failed bakery Patisserie Valerie. The large accountancy firm is also awaiting the outcome of the ongoing Sports Direct investigation.

Grant Thornton comments

A Grant Thornton spokesperson told AccountingWEB: “Having co-operated fully with the FRC throughout the course of its investigation into our audits relating to 2015-2017, we are pleased to now conclude this matter. 

“Whilst we acknowledge the regulator’s findings that certain limited aspects of our work were below expectations in this instance, it’s important to note that the findings did not assert that the company’s accounts were materially misstated in respect of these matters.

“We have invested significantly in our audit practice since the period in question, to drive consistently high quality and are now seeing the positive outcome of this investment – evidenced most recently in our latest AQR scores.” 

Replies (9)

Please login or register to join the discussion.

avatar
By Hugo Fair
01st Nov 2021 21:53

“This is a proportionate package of sanctions in respect of failings over three consecutive audit years. It reflects on one hand the seriousness of certain evidence and scepticism failures in FY 2015 and FY 2016, while recognising that the adverse findings were limited to discrete areas of large audits.”
Well that's alright then if it ONLY affected large audits!

And a new exemplar of corporate smugness was achieved when a Grant Thornton spokesperson said: “.. we are pleased to now conclude this matter.”
[Quite possibly adding, sotto voce, "This won't affect my annual bonus will it?"]

The scale both of failures and their impact is not remotely commensurate with the fines ... but am I surprised?
No wonder there is so little remaining respect for 'our betters'!

Thanks (5)
avatar
By Trethi Teg
02nd Nov 2021 08:38

Here we go again.

£730,000 between 185 partners in UK. Approx £4,000 each.

Annual salary for each GT partner is £323k.

So, this sanction amounts to less than a weeks pay!!!!

Absolute disgrace.

Disband the large practices as the audits they carry out are a complete waste of time. A local accountant will be able to do the same job i.e. useless, in a fraction of the time and save shareholders a fortune.

Thanks (3)
Replying to Trethi Teg:
avatar
By JamesDS
03rd Nov 2021 15:39

Get "the bloke down the pub" to do it, they're able to do everything and you NEVER hear of fraud or audit failings by "the bloke down the pub".

Other than the fact that "the bloke down the pub" is always down the pub, he's pretty much perfect!

Thanks (0)
avatar
By Paul Crowley
02nd Nov 2021 12:51

These things never seem to be proportionate compared with ICAEW disciplinary matters for the small accoutancy practice, which are often just a matter of principle

Thanks (5)
Replying to Paul Crowley:
avatar
By paul.benny
03rd Nov 2021 12:05

I think there genuinely is a difference.

Large corporates failures are typically the result of management who are greedy, corrupt or dishonest (eg Carillion failing to recognise contract losses) supported by a professional finance team. The auditor may be culpable for failing to stand up to management but they do not cause the failure.

You only have to read some of the questions on Any Answers here from people who claim they are accountants to see the woeful level of knowledge - and indeed blindness to their own limitations. Their clients run the risk of direct loss from the advice given.

Thanks (2)
avatar
By Wiganer Elaine
03rd Nov 2021 11:48

Maybe it's time for a re-think of how auditors are appointed.
Perhaps firms that require audits by law should pay annual "fees" to a central body which then appoints registered auditors on a rolling basis to carry out audits. Firms that provide other services for the relevant businesses will be excluding from being appointed auditors by the central body - the auditors will be paid by the central body not the companies themselves!

Thanks (0)
Replying to Wiganer Elaine:
avatar
By Arcadia
03rd Nov 2021 13:01

I think this is a good proposal generally. Managements still think the audit is within their gift and act accordingly. I don't think that doing this would affect failures of quality like this though. This is just about obtaining adequate evidence - there is no suggestion there was management pressure, or indeed that there was anything wrong with the accounts.

Thanks (0)
avatar
By Arcadia
03rd Nov 2021 11:50

The reality is that the FRC piled into this audit hoping that it would be another notch on their bedpost, assuming that every commercial failure is the auditor's fault. It wasn't. They have concluded the accounts were not misstated, there is no harm done to anyone. There is no suggestion the contract balance was wrong. All they found was a couple of boxes not ticked on a large audit. Witch hunt I say.

Thanks (1)
avatar
By AndrewV12
24th Nov 2021 10:52

'Simon Lowe, the then senior statutory auditor on the audit engagement, was also reprimanded by the FRC and fined £70,000, which was then reduced to £38,675. Lowe is now a consultant at the firm after leaving the audit side of the business in 2018.'

Grant Thornton are like the BBC, and other large Corporations, no one is sacked, just moved sideways.

Thanks (0)