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The Financial Reporting Council has sanctioned audit firm King and King and auditor Milankumar Patel following an investigation into their audit work for entities within GFG Alliance.
The regulator found pervasive breaches of ethical standards across four statutory audits conducted between 2018 and 2020, including failures to identify and address self-interest threats arising from the firm’s financial dependence on the client. According to the council, King and King derived between 30% and 40% of its total income from GFG Alliance companies during the period under review.
The investigation related to the 2019 audits of Liberty Specialty Steels, Alvance British Aluminium and Liberty Steel Newport, and the 2020 audit of Liberty Performance Steels. GFG Alliance operates as a group of companies under common ownership.
The watchdog said the auditors’ independence and objectivity were compromised, resulting in deficiencies in audit planning, risk assessment, income and expense recognition, going concern assessments and financial statement disclosures.
As a result, King and King received a financial penalty of £52,000, reduced following admissions and settlement, and a severe reprimand. The firm has also been barred from joining the Public Interest Entity Audit Register for five years and prohibited from accepting new audits for high-turnover companies for two years.
Meanwhile, Patel, the engagement partner responsible for signing the audit reports, received a total financial sanction of £326,184. This comprised £288,684 in disgorgement of financial benefits linked to the breaches and a further discounted penalty of £37,500.
The regulator also withdrew Patel’s status as a responsible individual. He is prohibited from carrying out statutory audit work, or influencing those undertaking such work, for three years and cannot reapply for his responsible individual status for a further two years.
The Financial Reporting Council said: “It is paramount that statutory audits are performed with objectivity, independence and free from self-interest. The failures by Patel and King and King to meet these requirements were particularly egregious.
“The widespread deficiencies across all the audits were a symptom of King and King’s and Patel’s fee dependency on the GFG entities. The serious but commensurate sanctions, which include disgorgement of fees and prohibitions on Patel performing future audits, send a clear message to the audit community that this behaviour will not be tolerated.”
