The Financial Reporting Council (FRC) has imposed a financial sanction of over £2.2m against Ernst and Young (EY) in relation to the statutory audit of Stagecoach Group plc for the financial year ended 29 April 2017.
Other sanctions include a requirement for the firm to report to the FRC for the period of one year in respect of audit work performed in relation to onerous contract provisions.
Furthermore, the FRC required EY to declare that its report of Stagecoach Group “did not satisfy” the audit reporting requirements for the reasons set out in the Final Decision Notice.
Meanwhile, the firm’s audit engagement partner, Mark Harvey was hit with a financial sanction of £70,000 and a severe reprimand.
The council stated that the most “serious deficiencies” in the audit work concerned the lack of “sufficient evaluation and challenge” of the work of management’s and Harvey’s respective experts.
Whilst it is not alleged that the financial statements were in fact “misstated”, in several material instances, the council said that Harvey “failed to obtain” sufficient appropriate audit evidence and to apply “sufficient professional scepticism” in their conduct of the audit.
However, the executive counsel recognised that EY took steps to identify the “root cause” of the audit failings, which related to only one audit year, and that the firm has undertaken “remedial action” in order to address the issues identified.
Claudia Mortimore, deputy executive counsel to the FRC, said: “The audit failings in this case were extensive and related to a number of fundamental auditing standards including the requirement to obtain sufficient appropriate audit evidence, adequately evaluate expert evidence and prepare proper audit documentation.
“The sanctions imposed reflect the seriousness of the breaches and are intended to improve the quality of future audits.”
Accountancy Today has contacted EY for comment.