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Sanctions and ethics: is the audit regulator fit for purpose?

Fines for audit failures may be increasing with PwC landed  a record £5.1m fine for the RSM Tenon audit, and another £5m for failures over Connaught, while Deloitte was given a £4m fine for Aero Inventory audit failures and Grant Thornton a £2.2m fine for AssetCo but there are serious questions about the scale and size of penalties, how they are dished out and the rationale for how the audit regulator, the Financial Reporting Council (FRC) sets them. Calum Fuller reports

Farepak. Tenon. Connaught. AssetCo. Aero Inventory. Cattles. All these and more are well-known audit failures that attracted Financial Reporting Council (FRC) fines and recriminations.

Take Farepak, the Christmas savings club, the furthest back of that collection. In that case, the FRC investigation found that EY and audit partner Alan Flitcroft failed to obtain sufficient appropriate audit evidence that all material events had been identified and reflected in Farepak’s 2005 financial statements. Flitcroft, in particular, failed to properly consider the company’s ability to continue as a going concern.

The ruling said that the firm and audit partner did not properly consider whether any relevant disclosures were required in the financial statements to give a true and fair view, or make proper enquiries of the directors and examine the appropriate financial information.

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