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The Financial Reporting Council has issued a £1.38m fine to BDO and one of its partners, following an investigation into the firm’s 2019 financial statements of former London Stock Exchange-listed construction group NMCN.
It comes as the accounting watchdog identified severe audit failures at the collapsed construction company.
As a result, the FRC’s executive counsel issued a final settlement decision notice that imposed a £1.33m penalty on BDO, while audit engagement partner Geraint Jones received a separate fine of £49,875 following the investigation.
The regulator also issued a “severe” reprimand to both parties and declared that the 2019 audit report failed to satisfy relevant industry requirements. BDO and Jones admitted to pervasive breaches across multiple areas, predominantly within the audit work on the long-term contracts of NMCN.
NMCN operated as a construction and consultancy services group before entering administration in October 2021. According to the FRC, BDO and Jones failed to obtain sufficient appropriate audit evidence or challenge management assertions regarding revenue, profit recognition, and the recoverability of contract assets.
Further breaches occurred during the audit of NMCN as a going concern. The FRC found that the auditors failed to plan and perform their work with professional skepticism, meaning they could not conclude whether the company faced material financial uncertainty.
The FRC noted that the breaches were not intentional, dishonest, deliberate, or reckless, and did not assert that the financial statements were factually misstated.
Both BDO and Jones received reductions to their initial penalties of £2m and £75k because of an exceptional level of cooperation and early admissions.
BDO also paid the agreed costs of the executive counsel investigation. The challenging circumstances of the 2019 audit included the first Covid-19 lockdown and the unexpected withdrawal of the original audit engagement partner.
Jamie Symington, deputy executive counsel at the FRC, said: “The breaches in this case are fundamental to audits of companies delivering major infrastructure contracts, where particular care needs to be taken in the audit of revenue and profits from the performance of long‑term contracts. The statutory auditors failed to critically assess evidence, challenge management’s assertions and exercise professional skepticism in important areas including going concern.
“The respondents demonstrated an exceptional level of cooperation with the investigation. This, together with their early admissions, enabling the matter to be resolved by settlement, has entitled them to a substantial reduction of the financial penalty imposed.”
