Sanctions against Deloitte and a partner
06 November 2020
The Financial Reporting Council (FRC) has issued a Final Decision Notice under the Audit Enforcement Procedure and imposed sanctions against Deloitte LLP (Deloitte) and one of its former Audit Engagement Partners (the Respondents), in relation to the statutory audit of the financial statements of a company for the 52 weeks ended 2 January 2016 (2015 Financial Statements).
The following sanctions have been imposed against Deloitte:
- A financial penalty of £500,000 (discounted to £362,500 for admissions and early disposal);
- A Reprimand; and
- A non-financial sanction requiring Deloitte to prepare a progress report for the consideration of the FRC’s Audit Quality Review team (AQRt) setting out its current Engagement Quality Control Reviewer (EQCR) work programmes and how such work is documented during the course of the audit of Public Interest Entities.
The sanction of a Reprimand has been imposed against the former Audit Engagement Partner.
The Respondents will also pay Executive Counsel’s costs of the investigation.
The breaches of Relevant Requirements related to the audit of (i) the Company’s defined benefit pension scheme (DB Scheme) and (ii) the carrying value of the company’s intangible assets. The Respondents failed to ensure that the review work carried out by the 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.
The Decision Notice does not question the truth or fairness of the 2015 Financial Statements. 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 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 AQRt on the audit of the 2015 Financial Statements. In addition, the former Audit Engagement Partner has a good compliance history and disciplinary record. Executive Counsel further acknowledges the co-operation provided by Deloitte and the former Audit Engagement Partner during the course of the investigation.
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.”
A link to the decision notice can be found here