Grant Thornton fined £1.3m over interserve audit failings

Grant Thornton has been fined £1.3m and its audit engagement partner Simon Lowe £70k by the FRC for failing to perform key judgements and accounting estimates relevant to loss provision in its statutory audits for the 2015-2017 financial statements of Interserve plc. According to the FRC, there were “serious” evidence and scepticism failings by the auditors in respect of key judgements and accounting estimates relevant to the loss provision, an area identified as a “significant risk” in the audit The council also said that aspects of the auditors’ assessments of going concern and goodwill impairment in the financial statements for FY 2017 - both having been identified, at planning stage, as areas of “significant risk” for the audit - where work on elements of the analysis of management’s modelling of the financial data was “inadequately performed” or, in some respects, inadequately documented. The non-financial sanctions, comprise a requirement for Grant Thornton to report to the FRC on its monitoring programme of the quality of audit work on loss-making contracts, a severe reprimand; and a declaration that the Statutory Audit Reports for the Audits did not satisfy the Relevant Requirements. According to the FRC non-financial sanctions for Lowe include a severe reprimand and a declaration that the Statutory Audit Reports for the Audits did not satisfy the Relevant Requirements. The company, now in administration, was a large, high-profile business with a number of public-sector clients and there was a significant public interest in the audit conducted. The FRC said the executive counsel does not assert that any of the breaches resulted in the financial statements being “materially misstated” and the breaches were limited to “discrete areas of the audit”. It added that both Grant Thornton and Lowe provided “exceptional co-operation” in the investigation, and made early admissions, and Grant Thornton has taken remedial actions to prevent similar breaches in the future. Claudia Mortimore, Deputy Executive Counsel to the FRC, said: “This is a proportionate package of sanctions in respect of failings over three consecutive audit years. “It reflects on one hand the seriousness of certain evidence and scepticism failures in FY 2015 and FY 2016, while recognising that the Adverse Findings were limited to discrete areas of large audits.” She added: “We note the exceptional cooperation provided by the respondents throughout the investigation and this has been reflected in the discount to the financial sanctions. A spokesperson for Grant Thornton UK LLP added: “Having co-operated fully with the FRC throughout the course of its investigation into our audits relating to 2015-2017, we are pleased to now conclude this matter. “Whilst we acknowledge the regulator’s findings that certain limited aspects of our work were below expectations in this instance, it’s important to note that the findings did not assert that the company’s accounts were materially misstated in respect of these matters.” They added: “We have invested significantly in our audit practice since the period in question, to drive consistently high quality and are now seeing the positive outcome of this investment – evidenced most recently in our latest AQR scores."

Grant Thornton fined £1.3m over interserve audit failings

Sanctions of £1.3m and £70k will be imposed on Grant Thornton and Mr Lowe respectively

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