Deloitte and one of the firm’s former engagement partners have been reprimanded by the Financial Reporting Council (FRC) over auditing failures at an unnamed client, with the Big Four firm given a £500,000 penalty
The sanctions relate to the statutory audit of the financial statements of the company for the 52 weeks ended 2 January 2016 (2015 financial statements).
The company is not named, but according to the FRC’s decision notice, at the time of the 2015 audit, it was one of the largest local and regional multimedia organisations in the UK, listed on the main London stock exchange and with a market capitalisation of approximately £43m.
The regulator’s investigation found breaches of relevant requirements related to the audit of the company’s defined benefit (DB) pension scheme, and also in relation to the carrying value of the company’s intangible assets.
Deloitte and the audit engagement partner were found to have failed to ensure that the review work carried out by the engagement quality control reviewer (EQCR) was adequately documented, failed to obtain sufficient appropriate audit evidence to substantiate the cash holding of the DB scheme and failed to obtain sufficient appropriate audit evidence in respect of its stress testing of the company’s impairment model.
As a result, Deloitte has been given a £500,000 penalty, discounted to £362,500 for admissions and early disposal, and a reprimand.
There is also non-financial sanction requiring Deloitte to prepare a progress report for the consideration of the FRC’s audit quality review (AQR) team setting out its current EQCR work programmes and how such work is documented during the course of the audit of public interest entities.
The former audit engagement partner has been given a reprimand, and both the partner and the firm are required to pay the costs of the FRC investigation.
The regulator said the reflected, among other things, the fact that Deloitte had already undertaken a number of remedial measures designed to address the shortcomings evident in the audit work in question following a report by the AQR team on the audit of the 2015financial statements.
In addition, the former audit engagement partner has a good compliance history and disciplinary record.
The FRC said the breaches subject to investigation were not intentional, dishonest, deliberate or reckless, and its decision notice does not question the truth or fairness of the 2015 financial statements.
Claudia Mortimore, deputy executive counsel to the FRC, said: ‘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.’
In a statement, Deloitte 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’.