The Financial Reporting Council (FRC) has imposed sanctions against Haysmacintyre LLP and audit engagement partner David Cox, regarding the audit of the financial statements of Associated British Engineering for the financial year ended 31 March 2018.
A declaration by the FRC’s executive counsel found that, as a result of adverse findings set out in the final decision notice, the Statutory Audit Report signed on behalf of Haysmacintyre and by Cox did not satisfy the relevant requirements.
Both received a “severe reprimand”, as well as financial penalties of £125,000 and £17,500, respectively. Both the firm and Cox will also pay counsel’s costs of the investigation.
Haysmacintyre and Cox admitted breaches of relevant requirements in six areas of audit work: Inventory; Journal entry testing; Revenue recognition and debt recovery; Defined benefit pension scheme; Documentation of audit work on going concern; and the review and supervision of the audit.
The breaches admitted were “pervasive, extensive and, in relation to the audit of inventory, serious”, according to the FRC.
The requirements of multiple International Standards on Auditing (UK) (ISA(s)) were breached, including ISA 220 (quality control for an audit of financial statements), ISA 230 (audit documentation), ISA 240 (the auditor’s responsibilities relating to fraud) and ISA 330 (the auditor’s responses to assessed risks).
The FRC said that both the firm and Cox failed to exercise both “sufficient professional skepticism and reasonable professional judgement” in their audit work.
In addition, they did not obtain “sufficient” appropriate audit evidence to provide a reasonable basis for the auditor’s opinion. In two other areas (journal entry testing and defined benefit pension scheme) they failed to conduct the audit so as to obtain sufficient appropriate audit evidence in accordance with ISA 500.
The executive counsel has accepted that the breaches of relevant requirements were not “intentional, dishonest, deliberate or reckless”, however. It added that Haysmacintyre has already undertaken an “extensive” programme of remedial measures designed to address the shortcomings in the audit work in question.
The FRC also acknowledged the “exceptional” level of co-operation given by Haysmacintyre and Cox during the course of the investigation.
Claudia Mortimore, deputy executive counsel to the FRC, said: “Haysmacintyre’s audit contained a number of significant failings, including a failure to exercise sufficient professional scepticism, failure to obtain sufficient, appropriate audit evidence and a failure to document the audit work properly.
“The imposition of the sanctions, and the FRC’s oversight of the extensive programme of remedial measures agreed with the firm, should lead to audit quality improvements.”