News January 2018 Sanctions in relation to the audit of Quindell Ltd

Sanctions in relation to the audit of Quindell Ltd

23 January 2018
PN 1/18                                                                                                                             

The Financial Reporting Council (FRC) has fined and reprimanded the audit firm Arrandco Audit Ltd. (formerly RSM Tenon Audit Ltd. “Tenon”) and the Audit Engagement Partner Jeremy Filley, following an investigation opened in August 2015. Both parties admitted Misconduct in relation to the audit of the financial statements of Quindell Portfolio plc and Quindell Ltd for the period ended 31 December 2011.
The following terms of settlement have been approved by a legal member of the independent Tribunal Panel:
  • Tenon to receive a Reprimand and a fine of £1,000,000 (adjusted for mitigating factors and discounted for settlement to £700,000)
  • Mr Filley, who was also Statutory Audit Partner to receive a Reprimand and a fine of £80,000 (adjusted for mitigating factors and discounted for settlement to £56,000)
  • Tenon to pay a sum of £90,000 towards Executive Counsel’s costs
Tenon and Mr Filley, a member of the Institute of Chartered Accountants in England and Wales (ICAEW), have admitted that their conduct fell significantly short of the standards reasonably to be expected of a Member and a Member Firm and that they failed to act in accordance with the ICAEW’s Fundamental Principle of Professional Competence and Due Care. The admitted acts of Misconduct related to two elements of the audits, and included failure to obtain reasonable assurance that the financial statements as a whole were free from material misstatement, failure to obtain sufficient appropriate audit evidence and failure to exercise sufficient professional scepticism. 
Those elements related to the accounting treatment of the reverse acquisition of Mission Capital plc, and a number of transactions entered into in 2011 by Quindell entities and TMC (Southern) Limited.  These were both the subject of prior year adjustments in the financial statements of Quindell plc for the financial year ended 31 December 2014.
The remaining part of the investigation, which does not relate to the above parties, and which was announced in August 2015, is ongoing.
Notes to editors:

The Financial Reporting Council’s (FRC) mission is to promote transparency and integrity in business.  The FRC sets the UK Corporate Governance and Stewardship Codes and UK standards for accounting and actuarial work; monitors and takes action to promote the quality of corporate reporting; and operates independent enforcement arrangements for accountants and actuaries. As the competent authority for audit in the UK the FRC sets auditing and ethical standards and monitors and enforces audit quality.

In relation to enforcement matters, the FRC is the independent, investigative and disciplinary body for accountants and actuaries in the UK dealing with cases which raise important issues affecting the public interest. In brief, the stages of the disciplinary process under the Accountancy Scheme are:
  • Decision to investigate
  • Investigation
  • Decision whether to bring enforcement proceedings against Member Firm or Member and, if so decided, referral to Disciplinary Tribunal
  • Tribunal hearing
  • Determination and imposition of sanction and/or costs orders
Under the Accountancy Scheme the FRC can start a disciplinary investigation in one of two ways: (i) the professional bodies can refer cases to the FRC; and (ii) the FRC may decide of its own accord to investigate a matter. The Conduct Committee will consider each case identified or referred to it and decide whether or not the criteria for an investigation are met.

The criteria are specified in paragraph 5(1) of the Accountancy Scheme. A Member or Member Firm shall be liable to investigation under this Scheme only where, in the opinion of the Conduct Committee the matter raises or appears to raise important issues affecting the public interest in the United Kingdom and there are reasonable grounds to suspect that there may have been Misconduct or it appears that the Member or Member Firm has failed to comply with any of his or its obligations under paragraphs 14(1) or 14(2) of the Scheme.

Investigations are conducted by Executive Counsel and the Enforcement division.