FRC fines MHA £150k over MRG audit failures

The executive counsel of the Financial Reporting Council (FRC) has fined MacIntyre Hudson LLP (MHA) and a former partner and employee, £158,000 in relation to the statutory audit of the financial statements of MRG Finance UK for the financial period ending 31 December 2018 and the financial year ended 31 December 2019.

MHA was imposed with a financial sanction of £200,000, discounted for mitigation, admissions and early disposal to £120,250.

Meanwhile, former employee Deborah Weston faced a financial sanction of £30,000, discounted for admissions and early disposal to £19,500 and former partner Geeta Morgan faced a financial sanction of £25,000, discounted for admissions and early disposal to £18,750.

The respondents will also pay executive counsel’s costs of the investigation.

The FRC stated that MHA and Weston (in relation to the FP2018 Audit) and MHA and Morgan (in relation to the FY2019 Audit) have admitted that there were “numerous breaches” of Relevant Requirements in the audit work completed.

The primary breach in each audit year was the failure during the audit acceptance and continuance processes to ultimately identify, and so conduct the audits on the basis, that the company was a Public Interest Entity because although it had not listed its shares, it had listed the bonds on the London Stock Exchange debt market.

The FRC’s investigation also identified additional breaches of Relevant Requirements concerning the application of the correct accounting standards and documentation, and audit work on: confirmation of bank balances, a loan to the parent company, and the going concern assumption.

The respondents all co-operated with the FRC’s investigation and admitted the breaches.

According to FRC, MHA provided an “exceptional” level of cooperation during the FRC’s investigation in that MHA voluntarily provided its own internal review of the FY2019 Audit to executive counsel and liability was agreed at an early stage. This is reflected in the discount applied to MHA’s financial sanction.

Claudia Mortimore, deputy executive counsel, said: “This case highlights the importance of auditors conducting robust checks at the acceptance and continuance stage of any audit engagement.

“The auditors did not obtain a clear understanding of the audited entity’s characteristics and failed to properly consider these issues afresh when continuing that engagement. The conclusions reached at these stages are crucial in determining whether a firm is able to perform an audit and the manner in which the audit should be conducted. To support high quality audit, it is vital these stages are completed in a robust and detailed manner.”

Accountancy Today has contacted MHA for comment.