News July 2020 FRC announces sanctions against Audit Engagement Partner

FRC announces sanctions against Audit Engagement Partner

08 July 2020
The Financial Reporting Council (FRC) has sanctioned a former audit engagement partner, Mr Kevin Engel, (the Audit Engagement Partner) in respect of Grant Thornton UK LLP’s (the Firm) audit of the financial statements of Conviviality Retail Plc (the Company) for the year ended 30 April 2014 (the Audit).
The following sanctions have been imposed:
  • A Severe Reprimand. 
  • A permanent prohibition banning the Audit Engagement Partner from signing audit opinions.
The Audit Engagement Partner arranged for a senior manager, who was initially part of the team assigned to the Audit, to be seconded to the Company to assist with the preparation of its year-end financial statements.  The threats to independence created by this situation were so great that the Audit Engagement Partner should not have provided an audit opinion, and in signing an unqualified audit opinion confirming compliance with all relevant standards as he in fact did, he breached a number of standards designed to preserve the independence and objectivity of audit. 
In addition, he instructed the secondee to transfer a four and a half hour time entry originally recorded on the Audit file in order to conceal evidence of that individual’s involvement in both the Audit and subsequently the preparation of the Company’s accounts, being aware of the threats to independence which those circumstances had created. 
The sanctions imposed take into account that the Audit Engagement Partner has provided an exceptional level of co-operation during the course of the investigation but also that he has been the subject of previous enforcement action by the FRC.
The Final Decision Notice, edited for publication, is published here.
Notes to editors:
  1. The FRC’s purpose is to serve the public interest by setting high standards of corporate governance, reporting and audit and by holding to account those responsible for delivering them. 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.
  1. Past FRC Enforcement Outcomes can be found here.
  1. To meet its responsibility as the competent authority in respect of audit enforcement, the FRC operates the Audit Enforcement Procedure. This procedure applies to the investigation and sanctioning of breaches of the various requirements of the statutory auditors of Public Interest Entities (PIEs) and any other cases retained by the FRC including AIM companies with a market capitalisation in excess of €200m.
In brief, the stages of the Audit Enforcement Procedure are: 
  • Initial case examination and decision to investigate
  • Investigation
  • Decision by Executive Counsel as to whether to issue a Decision Notice (a notice with the findings and recommended sanction);
  • Referral to Enforcement Committee and decision by the Enforcement Committee whether to issue a Decision Notice; and
  • Referral to a Tribunal
  • In order for a matter to be referred for investigation by the FRC’s Executive Counsel under the Audit Enforcement Procedure, the FRC’s Conduct Committee is required to decide whether there is good reason to investigate an Allegation in relation to a Statutory Auditor and/or a Statutory Audit Firm.
Investigations are usually conducted by Executive Counsel and the Enforcement division. The FRC’s Conduct Committee may direct that the investigation is delegated to a Recognised Supervisory Body (RSB) which will provide an investigation report to the Executive Counsel so that (s)he may decide whether to issue a Decision Notice.
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