The Financial Reporting Council (FRC) has disclosed details of penalties of almost £1m imposed on RSM Robson Rhodes, together with one of its former audit partners, following an investigation into accounting irregularities at iSoft, the failed healthcare software supplier.
The FRC did not publish the Disciplinary Tribunal Report at the time following the original November 2011 hearing into RSM Robson Rhodes and Williams, because of on-going criminal proceedings being brought by the then Financial Services Authority (FSA).
The FRC's Accounting and Actuarial Discipline Board (AADB) ordered Robson Rhodes to pay a fine of £225,000 and a contribution of £750,000 towards the costs of the AADB, while former audit partner Glyn Williams was reprimanded and ordered to pay of fine of £15,000. The firm merged with Grant Thornton in 2007 and Williams is a GT audit partner.
The AADB said that both Robson Rhodes and Williams accepted that their conduct in relation to the audits of the iSoft accounts for the years ending 30 April 2003, 2004 and 2005 had fallen short of the standards reasonably to be expected in relation to revenue recognition, funded contract receivables and goodwill.
The software company was originally set up as a business group within KPMG but was later bought out. Robson Rhodes was appointed iSoft's auditor from its incorporation in 1998 until 2005 with Williams, who was made the firm's national head of audit in 2004, as audit partner.
The AADB report says that for the financial years 2003 and 2004 Robson Rhodes, and in particular Williams, failed to identify that iSoft's major contracts should have been accounted for to spread more revenues across the term of the contract and less recognised upfront. They also failed to qualify their audit opinion in respect of revenue recognition and, as a result, the accounts failed to show a true and fair opinion for these two accounting periods.
For the financial year ending 30 April 2005, Robson Rhodes and Williams in particular failed to obtain sufficient evidence regarding progress and income relating to two long-term contracts iSoft held with the NHS to work on a £6bn IT upgrade, and failed to demonstrate sufficient professional scepticism towards information made available by management.
In addition, the report says Robson Rhodes and Williams failed to undertake sufficient audit work to investigate and test the non-impairment of the carrying value of goodwill in relation to three acquisitions made during this period. In 2005, iSoft reported a £343.8m pre-tax loss in the year to 30 April, largely as a result of writing down the value of Torex, a company that it bought in 2004.
The Financial Conduct Authority (FCA), which took over from the FSA, announced in July this year that it had abandoned its prosecution case against three former iSoft executives for providing misleading financial statements, after a second retrial was halted as a result of late presentation of evidence.
As any criminal proceedings have been terminated, the FRC's Conduct Committee has now decided it is in the public interest to publish the report, which also make clear that there is no suggestion of impropriety or dishonesty on Williams' part and both he and Robson Rhodes are given credit for their 'extensive admissions'. The case against them was heard under the so-called 'Carecraft procedure', which allows for a speedier settlement without the time and expense involved in a full hearing.
