Sanctions against UHY Hacker Young LLP and Julie Zhuge Wilson
News types: Investigations, Policies and Responsibilities, Publications
Published: 13 May 2021
The Financial Reporting Council (FRC) has issued a Final Decision Notice under the Audit Enforcement Procedure and imposed sanctions against UHY Hacker Young LLP (“ UHY ”) and Julie Zhuge Wilson (“ Ms Wilson ”), Audit Engagement Partner, in relation to the statutory audit of the consolidated financial statements of Inch Kenneth Kajang Rubber plc (“ IKKR ”) for the financial year ended 31 December 2016 (the “ FY16 Audit ”).
The following sanctions have been imposed against UHY:
- A Severe Reprimand;
- A declaration that the FY16 Audit report did not satisfy the Relevant Requirements; and
- Non-financial sanctions requiring UHY to take remedial action to prevent the recurrence of the breaches, namely: (i) enhanced mandatory training for Responsible Individuals and periodic reporting to the FRC for three years; (ii) implementing a Root Cause Analysis Programme; (iii) reporting to the FRC within 12 months on the implementation of recommended actions following an independent review of UHY’s audit practice; and (iv) reporting on the outcomes of Root Cause Analysis, and file reviews, on Public Interest Entity (“PIE”) audits, and any remedial actions, for a period of three years.
The following sanctions have been imposed against Ms Wilson:
- A Severe Reprimand;
- A declaration that the FY16 Audit report did not satisfy the Relevant Requirements; and
- Non-financial sanctions requiring Ms Wilson to take remedial action to prevent the recurrence of the breaches: (i) a prohibition on acting as Statutory Auditor of a PIE and signing a Statutory Audit Report in respect of a PIE for a period of two years; (ii) regular external file reviews on a selection of non-PIE audits and reporting on the outcomes to the FRC for a period of three years; (iii) to provide the FRC with ACCA inspection outcomes in relation to any inspections of non-PIE audits for a period of three years; and (iv) to agree a training programme with the FRC, including periodic reporting.
UHY and Ms Wilson will also pay Executive Counsel’s costs of the investigation.
The IKKR Group is engaged in rubber manufacture, tourism, construction and property development/leasing. At all times relevant to the FY16 Audit, its operations were entirely based in South East Asia, primarily Malaysia. Whilst its registered office was in Scotland, the activities of the parent company were minimal and the operational and financial management of the IKKR Group was also based in Malaysia.
The admitted audit failings included a general failure to prepare sufficient audit documentation, a failure to obtain sufficient appropriate audit evidence and a lack of professional scepticism.
The breaches of Relevant Requirements related to a number of areas of the FY16 Audit, including: (i) the acceptance, planning and resourcing of the Audit; (ii) assessing the capabilities of component auditors, instructing the component auditors and involvement in their assessment as to risk; (iii) the review of the work of a component auditor; (iv) the engagement with the audit Engagement Quality Review partner (EQCR); and (v) the signing of the audit report. There were also specific breaches in relation to audit work on an industrial land transaction and on the carrying value of an associate.
The breaches of Relevant Requirements were not intentional, dishonest, deliberate or reckless.
The sanctions determined by Executive Counsel reflect, among other things, the fact that UHY had already undertaken significant remedial action, following the FRC’s Audit Quality Review team’s findings on the FY16 Audit that led to the referral to Enforcement. Executive Counsel has also taken into account the size and financial resources of UHY. In addition, UHY and Ms Wilson have a good compliance history and disciplinary record with no prior sanctions under the AEP or Accountancy Scheme.
Claudia Mortimore, Deputy Executive Counsel to the FRC, said:
“The Relevant Requirements breached in this case related to numerous fundamental areas of the audit and were designed to ensure the quality and effectiveness of the audit. The proportionate sanctions are geared towards preventing recurrence of the breaches and improving audit quality.”