Grant Thornton Let Off the Hook Big Time By UK’s Audit Cops

Again in August 2018, Grant Thornton UK was given a £4 million fine by the Financial Reporting Council (lowered to £3 million after a settlement low cost) for a then-partner’s battle of curiosity in serving on the audit committees of two audit purchasers, along with “widespread and severe inadequacies within the management atmosphere in Grant Thornton’s Manchester workplace … in addition to firmwide deficiencies in insurance policies and procedures regarding retiring companions.”

The Night Normal reported on the time that GT’s high-quality was the largest given to a non-Big 4 firm by the FRC. It was a reasonably dangerous independence violation, deserving of a £3 million penalty.

Then, about two months later, information began spreading like wildfire in Britain about big accounting irregularities discovered at cafe chain Patisserie Valerie, which resulted in Pat Val:

  • Going into administration, resulting in 70 shops closing and greater than 900 individuals shedding their jobs.
  • Overstating its accounts by £94 million.
  • Having five people arrested and questioned in June 2019 in regards to the accounting fraud, in accordance with the Critical Fraud Workplace. Patisserie Holdings’ former finance director Chris Marsh was arrested and launched on bail over the scandal in 2018.

And what agency audited Patisserie Holdings, the dad or mum firm of Patisserie Valerie? Grant Thornton.

The FRC introduced in November 2018 that it could examine Grant Thornton’s audits of Patisserie Valerie for the monetary years ending 2015, 2016 and 2017. The results of that investigation were finally announced this morning, and it left us questioning how the FRC determines the monetary punishments it doles out to accounting companies as a result of generally they don’t make an entire lot of sense.

The Financial Times reported:

Grant Thornton has been fined greater than £2.3m for a “severe lack of competence” in its audits of UK café chain Patisserie Valerie, which collapsed in January 2019 amid allegations of fraud.

If the auditors had achieved their job correctly, they “ought to have recognized clear indicators of the chance of fabric misstatement [of Patisserie Valerie’s accounts] resulting from fraud”, the Monetary Reporting Council stated.

The Monetary Reporting Council additionally ordered the UK’s sixth-largest accounting agency to pay its investigation prices of greater than £650,000, taking the whole penalty to nearly £3m.

Soooo, Grant Thornton received basically the identical high-quality from the FRC for an auditor independence violation because it did for giving clear audit opinions for an organization on the middle of one of many greatest accounting scandals within the U.Ok. within the final a number of years. Huh. OK then.

Some individuals took to Twitter as we speak to precise their dismay on the wrist-slapping penalty Grant Thornton acquired from the FRC:

Lawson, a former shareholder of Patisserie Holdings, wrote about the penalties against Grant Thornton today in his blog, saying:

GT declare[s] that “our work didn’t trigger the failure of the enterprise”. On the finish of the day that may have been so but when the faulty accounts had been recognized in 2015 or 2016 earlier than the fraud turned completely out of hand, maybe the corporate might have been saved. It could actually have saved me and lots of different traders from investing within the firm’s shares after 2015.

The monetary penalties for such incompetence are in fact nonetheless trivial. Grant Thornton’s buying and selling revenue final yr was £57 million.  

The FRC stated Grant Thornton’s audit of Patisserie Holdings’s income and money specifically concerned missed crimson flags, a failure to acquire enough audit proof, and a failure to face again and query info offered by administration.

Along with Grant Thornton’s high-quality, the engagement companion on the Patisserie Holdings audits, David Newstead, was fined £150,000 however the penalty was lowered to £87,750, and the FRC banned him from finishing up statutory audits for 3 years. Grant Thornton stated it could pay the high-quality for Newstead, who nonetheless works on the agency however is now not a companion, in accordance with FT.

The FRC additionally ordered Grant Thornton to overview its tradition of difficult purchasers in its audit observe and to supply the FRC with an annual report for 3 years on the progress of actions to enhance its audit high quality.

The report from the FRC is 65 pages, and all of the gory particulars of auditor incompetence is included beneath.

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