Audit

FRC fines Grant Thornton £2.34m over Patisserie Valerie audit failings

The firm’s audit engagement partner, David Newstead, was also subject to a fine of £87,750 and was issued with a three-year ban from carrying out statutory audits and signing statutory audit reports

The Financial Reporting Council (FRC) has issued a £2.34m fine against Grant Thornton UK in relation to their audit of Patisserie Holdings for the financial years 2015, 2016 and 2017.

The firm’s audit engagement partner, David Newstead, was also subject to a fine of £87,750 and was issued with a three-year ban from carrying out statutory audits and signing statutory audit reports.

Since 2007, the group acted as statutory auditor for Patisserie Holdings and signed off “clean audit opinions” for the financial statements in each of the FY15, FY16 and FY17 audits.

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However, in October 2018, Patisserie Holdings announced that its board had been notified of potentially “fraudulent accounting irregularities” with the company subsequently entering into administration, leading to the closure of 70 stores and more than 900 job losses.

In each of the three audited years, “serious breaches” were found in regards to Relevant Requirements across the four different audit areas, often repeated year on year, and in relation to several legal entities.

The breaches revealed a pattern of “serious” lapses in professional judgement, failures to exercise “professional scepticism”, failures to obtain “sufficient appropriate” audit evidence and / or to prepare sufficient audit documentation.

Consequently, each of the audits failed in their principal objectives of providing reasonable assurance that the financial statements were free from material misstatement, whether caused by fraud or error.

Claudia Mortimore, deputy executive counsel to the FRC, said: “This Decision Notice sets out numerous breaches of Relevant Requirements across three separate audit years, evidencing a serious lack of competence in conducting the audit work.

“The audit of Patisserie Holdings Plc’s revenue and cash in particular involved missed red flags, a failure to obtain sufficient audit evidence and a failure to stand back and question information provided by management.”

A spokesperson for Grant Thornton noted that the group have “cooperated fully” with the FRC and acknowledge the investigation’s findings.

They said: “We regret the quality of our work fell short of what was expected of us in this instance. Since the period in question, we have invested significantly in our audit practice to better ensure consistent quality and have started to see the material outcome of this investment – evidenced most recently in our latest AQR scores.

“We will continue to rigorously defend the civil claim brought by PV’s liquidators, which ignores the board’s and management’s own failings in detecting the sustained and collusive fraud which took place. We recognise that there were shortcomings in our audit work; however, our work did not cause the failure of the business.”

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