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The FRC has sanctioned EY and its audit engagement partner Christopher Voogd over Stirling Water Seafield Finance’s (SWSF) 2019 financial statement.
Following an investigation, the FRC found out that EY by undertaking the audit exceeded the maximum ten year engagement period for audits of a Public Interest Entity (PIE) without renewal via a qualifying public tender.
Both EY and Voogd failed to ensure that appropriate procedures regarding the continuance of the audit engagement had been followed in breach of the International Standards for Auditing. EY also failed to comply with its quality control obligations in relation to independence requirements, in breach of the International Standard on Quality Control.
EY has been hit with a financial sanction of £500,000, discounted for admissions and early disposal to £325,000 as well as a severe reprimand and a declaration that the audit report signed on behalf of EY did not satisfy the relevant requirements.
In addition, a root-cause analysis report needs to be prepared and presented to the FRC identifying the reasons for the breach, actions taken since and any further remedial action proposed by the FRC to be implemented as necessary.
The FRC also sanctioned Voogd for £50,000, discounted for admissions and early disposal to £32,500 as well as a severe reprimand and a declaration that the audit report signed by him did not satisfy the relevant requirements.
SWSF is a financing company, which is part of a group of companies and is a wholly owned subsidiary of a UK parent company. It raises funds for other group companies by the issue of bonds which have been admitted to trading on the London Stock Exchange since July 2002.
Jamie Symington, FRC deputy executive counsel, said: “Mandatory firm rotation is a clear requirement for auditors underpinned by company law and the FRC’s Revised Ethical Standard. It is an integral legal safeguard to provide assurance that auditors are demonstrably independent which supports trust and confidence in UK corporate reporting and audit.
“In this case, there were significant failings in relation to mandatory firm rotation requirements at both the engagement and firm level during the continuance stage, which led to EY carrying out audit work despite being ineligible. It highlights the importance of the firm having adequate quality control standards under ISQC 1, as now succeeded by ISQM 1.”
