The regulator said both the firm and Napper had admitted misconduct, which was down to ‘significant and widespread lack of professional competence and due care’ in the audits of the financial statements of the AIM listed company for the financial years ended 31 March 2009 and 31 March 2010. Grant Thornton was the statutory audit firm, and Napper the audit engagement partner.

FRC said the firm and Napper had failed to keep track of tasks and resolve outstanding queries, which led to confusion and some key information and issues being overlooked. The investigation also found flawed judgments; deficiencies in understanding; and insufficient appreciation of audit risks.

The FRC said Grant Thornton and Napper have further accepted that the root cause of many of the defects in their audit work was a significant failing in the application of professional scepticism, which should be at the core of the work of statutory auditors.

The FRC’s executive counsel brought a total of 12 allegations against the firm and Napper concerning a range of matters. These included disclosures in respect of related party transactions and restricted cash; the existence of significant amounts of finance lease debtors and related revenue, and measurement of substantial assets including investments in subsidiaries, goodwill and other intangible assets; the assessment of the going concern assumption in the financial statements; and failures to apply sufficient professional scepticism in relation to a variety of matters material to the financial statements.

Under the terms of the settlement, Grant Thornton was given a fine of £3.5m, reduced to £2.275m after settlement discount, and a severe reprimand; while Napper has been excluded from membership of ICAEW for three years and given a fine of £200,000, reduced to £130,000 after settlement discount. Grant Thornton is also paying £200,000 as a contribution to the executive counsel’s costs.

Gareth Rees executive counsel to the FRC, said: ‘The respondents have admitted widespread and significant failings in their audit work, and GT specifically has accepted there were serious failings in the execution of certain aspects of the firm’s quality control procedures.

‘This misconduct is rightly reflected in the seriousness of the sanctions, such as the exclusion of Mr Napper from membership of the ICAEW and the fines on both respondents. These sanctions will send a strong signal to the audit profession of the importance of upholding high standards of conduct. These sanctions will also serve to protect the public and deter future misconduct in the audit profession.’

In a statement, Grant Thornton said: 'We have fully co-operated with the FRC throughout the investigations and regret these failings. Our audit quality processes have evolved significantly since these audits were performed in 2009 and 2010 and we are determined in our efforts to ensure our work is of the highest quality. Given the FRC’s ongoing proceedings against three former executives of AssetCo plc, in which the FRC alleges, amongst other things, that they acted dishonestly or recklessly, we are unable to comment further.'

The FRC’s particulars of fact and acts of misconduct is here.

The FRC’s settlement agreement with Grant Thornton and Napper is here.