Following a series of multimillion pound fines for audit misconduct, the audit regulator has ramped up its guidance on the use of judgment and professional scepticism, explains Paul Brehony, partner at Signature Litigation LLP
Another month, another multimillion pound penalty imposed on an audit firm. The latest audit firms to be penalised by the Financial Reporting Council (FRC) are Grant Thornton for £2m in relation to its audit of Sports Direct and KPMG’s £14.4m penalty for forging documents and misleading the regulator over its audit of the collapsed outsourcer Carillion.
Other prominent recent examples include PwC’s audit of BHS, EY’s work for Stagecoach and that of Deloitte in relation to its audit of Autonomy. Last month KPMG was accused of ‘terrible’ audit work having allowed US registered Chinese bi-tech company to carry out a £400m ‘brazen’ accounting fraud.
According to the FRC, a constantly recurring finding emerging from their investigative work is poor professional judgment and, in particular, a lack of professional scepticism. In its year at a glance synopsis, the FRC actually cite a lack of professional scepticism ‘as the single most important recurring theme in the cases it investigated and prosecuted’.
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