News November 2012 Outcome of the investigation into the conduct of: Ernst & Young LLP, Member Firm of ICAEW and Alan F

Outcome of the investigation into the conduct of: Ernst & Young LLP, Member Firm of ICAEW and Alan Flitcroft, Member of ICAEW

15 November 2012

PN 022

European Home Retail PLC/ Farepak Food & Gifts LTD

The FRC’s Executive Counsel has filed a disciplinary Formal Complaint in connection with the conduct of Ernst & Young LLP and Mr Alan Flitcroft, as auditors to European Home Retail Plc (EHR) and its subsidiaries, including Farepak Food & Gifts Ltd. (“Farepak”).
The scope of the investigation included the conduct of Ernst & Young LLP and of Mr Alan Flitcroft in relation to the audit of the accounts of Farepak for the period ending 28th April 2005. 
The Formal Complaint alleges that the conduct of Ernst & Young LLP and of Mr Flitcroft fell short of the standards reasonably to be expected of ICAEW Members and Member Firms in that they failed to comply with the requirements of applicable auditing standards and consequently failed to act in accordance with the ICAEW Ethical Code principle that a member should carry out their professional work with due skill care, diligence and expedition and with proper regard to technical and professional standards. The Formal Complaint alleges that Ernst & Young and Mr Flitcroft:

  • Failed properly to consider the effect of certain “post balance sheet events.” Namely, material events that occur between the date financial statements are prepared up to, and the date at which they are issued, which would prevent these statements from being misleading.

  • Failed properly to: obtain sufficient appropriate audit evidence on which to base the audit opinion; consider Farepak’s ability to continue as a going concern and disclosures in the financial statements; consider management representations as part of audit evidence and document important matters in their working papers.

An independent Disciplinary Tribunal will be appointed to hear the Formal Complaint.
The FRC is independent of the professions it disciplines and operates in the public interest. 
Notes to editors:

  1. The FRC is responsible for promoting high quality corporate governance and reporting to foster investment.  We set the UK Corporate Governance and Stewardship Codes as well as UK standards for accounting, auditing and actuarial work.  We represent UK interests in international standard-setting.  We also monitor and take action to promote the quality of corporate reporting and auditing.  We operate independent disciplinary arrangements for accountants and actuaries; and oversee the regulatory activities of the accountancy and actuarial professional bodies.

  2. From 18 October 2012, and in accordance with the FRC reform programme, the functions of the FRC’s Accountancy and Actuarial Discipline Board (“AADB”) are now exercised by the FRC and its Conduct Committee and Executive Counsel. The investigation leading to this complaint was started by the AADB before the reform programme was implemented and the complaint has been issued in the name of the AADB.

  1. The FRC is the independent, investigative and disciplinary body for accountants and actuaries in the UK with a focus on cases which raise important issues affecting the public interest.