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Yellow caution box | AccountingWEB | MacIntyre Hudson LLP hit with £200k audit sanction
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MHA hit with £200k audit sanction

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A six-figure sanction has been handed down to MHA (formerly MHA MacIntyre Hudson) at a time when calls for audit reform continue to be brought to the fore.

9th Jul 2024
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MHA has been hit with a £200,000 sanction - discounted to £120,250 - and handed a severe reprimand in relation to the statutory audit of the financial statements of MRG Finance UK.

Incorporated on 3 May 2018, MRG issues bonds to raise finance for its parent company, a business focused on natural resources with interests in agribusiness, logistics and technology.

The case concerning MHA – as well as former partner Deborah Weston and former employee Geeta Morgan – concerns the statutory audit of the financial statements of MRG for the financial period ending 31 December 2018 (the FP2018 audit) and the financial year ended 31 December 2019 (the FY2019 audit).

Morgan performed the role of audit engagement partner in respect of the FY2019 audit on behalf of MHA, although she was a director.

MHA and Weston, in relation to the FP2018 audit, and MHA and Morgan (in relation to the FY2019 audit) have admitted that there were numerous breaches of relevant requirements in the audit work completed.

The sanctions

As such, the executive counsel of the Financial Reporting Council (FRC) has issued a final settlement decision notice under the audit enforcement procedure (AEP) and imposed the sanctions.

Against MHA they are:

  • a financial sanction of £200,000, discounted for mitigation, admissions and early disposal to £120,250
  • a published statement in the form of a severe reprimand
  • a declaration that the FP2018 audit and FY2019 audit report signed on behalf of MHA did not satisfy the relevant requirements
  • an order requiring MHA to take specified actions to prevent the reoccurrence of the contravention.

Against Weston the sanctions are:

  • a financial sanction of £30,000, discounted for admissions and early disposal to £19,500
  • a published statement in the form of a severe reprimand
  • a declaration that the FP2018 audit report signed on behalf of MHA did not satisfy the relevant requirements.

Against Morgan they are:

  • a financial sanction of £25,000, discounted for admissions and early disposal to £18,750
  • a published statement in the form of a severe reprimand
  • a declaration that the FY2019 audit report signed on behalf of MHA did not satisfy the relevant requirements
  • an order requiring Morgan to take specified actions to prevent the reoccurrence of the contravention.

Failure to gain adequate understanding

The primary breach in each audit year, according to the FRC, was the “failure during the audit acceptance and continuance processes to ultimately identify (and so conduct the audits on the basis) that the company was a public interest entity because, although it had not listed its shares, it had listed the bonds on the London Stock Exchange debt market”.

The FRC continued: “The failure to gain an adequate understanding of the company, and the regulatory framework applicable to it, led directly to further breaches of relevant requirements, including, in both years, provision of prohibited non-audit services and a failure to ensure that an engagement quality control review was performed before the audit report was signed.”

Elsewhere, the investigation identified additional breaches of relevant requirements concerning the “application of the correct accounting standards and documentation, and audit work on confirmation of bank balances, a loan to the parent company and the going concern assumption”.

The respondents were said to have “all co-operated with the FRC’s investigation and admitted the breaches”.

“MHA provided an exceptional level of co-operation during the FRC’s investigation in that MHA voluntarily provided its own internal review of the FY2019 audit (including details of its findings) to executive counsel and liability was agreed at an early stage. This is reflected in the discount applied to MHA’s financial sanction.”

Importance of robust checks

Claudia Mortimore, deputy executive counsel, stressed that the case “highlights the importance of auditors conducting robust checks at the acceptance and continuance stage of any audit engagement”.

“The auditors did not obtain a clear understanding of the audited entity’s characteristics and failed to properly consider these issues afresh when continuing that engagement. The conclusions reached at these stages are crucial in determining whether a firm is able to perform an audit and the manner in which the audit should be conducted.

“To support high-quality audit, it is vital these stages are completed in a robust and detailed manner.”

A spokesperson for MHA said: “The fine announced today by the FRC relates to the audits conducted by MHA Macintyre Hudson and its former partner and employee of the financial statements of MRG Finance UK plc for the years ended 31 December 2018 and 31 December 2019.

“MHA acknowledges the shortcomings in the process for those periods and has significantly strengthened its internal control procedures several years ago to incorporate any lessons learned.

“MHA has fully co-operated throughout with the FRC enquiry and is committed as always to the highest levels of audit quality including with MRG Finance UK plc, which remains an audit client.”

The sanctions come against a backdrop of calls for audit reform, despite the issue seemingly being off the agenda having not been mentioned across the political parties’ manifestos and being omitted from the King’s Speech late last year.

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Replies (8)

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By FactChecker
09th Jul 2024 16:53

Good to see the return of "lessons learned" ... welcome back, old friend!

I suppose it's a slight innovation to have a case where the shortcomings broadly fall into the category of incompetence (rather than the more usual laziness, greed and their siblings).

What happened to my suggestion of a few years back to publish a regular (I suggested quarterly but you could probably manage monthly now) résumé of the Charts for a rolling 5-year period.
You know the sort of thing ... 'fastest risers', 'bubbling under', and 'Top of the Pops' ... with different charts for the 'number' of audits, and for 'the amount of fines', and the 'number of individuals penalised'. Eventually you could spread out to cover other countries and so on.

It might have no impact on the behaviour of the culprits (but then neither does the current regime or reporting on it case by case) ... so why not give it a try - at least it would be more fun to read!

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Replying to FactChecker:
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By ColA
11th Jul 2024 09:12

Having spent almost five decades in commerce, private & public sector I remain cynically amused at the contortions of the profession around auditing.
This despite ICAEW still largely administered by those from the professional arm, rather than commercial.

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By Andrew Mitchell
11th Jul 2024 09:48

Admittedly only briefly reading this post and the related report, two things strike me: I can't see anywhere that there is a suggestion that the accounts were incorrect (please correct me if I have missed something) and secondly, if the people from the FCA are so good at auditing, why aren't they in the profession carrying out impeccable audits super efficiently and making their firms a fortune?

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Replying to Andrew Mitchell:
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By steve01257
11th Jul 2024 10:46

What a fine idea but if that is a step too far then perhaps they could carry out mandatory training for all auditors then all would be well and no need to worry about audit reform being off the political agenda.

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Replying to Andrew Mitchell:
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By paul.benny
11th Jul 2024 15:30

Andrew Mitchell wrote:
...if the people from the FCA are so good at auditing, why aren't they in the profession carrying out impeccable audits ...

That's a bit like saying why aren't coaches the best athletes, why aren't umpires and judges the best players. Even, why aren't auditors company accountants.
Knowing what is good/compliant isn't the same thing as doing it.

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By listerramjet
11th Jul 2024 12:54

This was an individual specific lapse. No sense in which it could be claimed to be systemic, so no reason to raise the spectre of audit reform. It does of course highlight how lapses are spotted only after the event. Interesting that the firm in question had clearly acted relatively swiftly, unlike the regulator!

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Replying to listerramjet:
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By Justin Bryant
11th Jul 2024 13:15

Yes. I doubt even 1% of Aweb readers would have spotted this technical oversight re PIEs.

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Replying to listerramjet:
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By paul.benny
11th Jul 2024 15:27

It's not clear how this came to light. Indeed, the report (para 154) says there was little adverse effect. Possibly the result of Practice Assurance visits?

Disciplinary cases always look tardy because ICAEW usually have to wait until other litigation has concluded. It's not clear here why this is still four years after the misdeeds.

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