LONDON: The Financial Reporting Council (FRC) has announced sanctions against Grant Thornton UK LLP and one of its Audit Engagement Partners in relation to the statutory audit of the 2016 financial statements of a publicly listed company.

The sanctions are:

• A fine of £650,000 for Grant Thornton (discounted for admissions and early disposal to £422,500),
• A fine of £20,000 for the Audit Engagement Partner (discounted for admissions and early disposal to £13,000); and
• A declaration that the 2016 Audit report signed on behalf of Grant Thornton did not satisfy certain Relevant Requirements (summarised below).

Grant Thornton and the Audit Engagement Partner will also pay all of Executive Counsel’s costs of the investigation.

The admitted breaches of Relevant Requirements relate to the audit work carried out on the Company’s principal assets, and an area identified as a significant risk.  The work done on the sampling of those assets was inadequate and failed to select an audit sample that was sufficient to reduce the sampling risk to an acceptably low level.

The audit team also placed undue reliance on the Company’s externally appointed experts in the valuation of the assets and did not appropriately consider the use of an auditor’s expert. The breaches by the audit team led to a failure to obtain sufficient appropriate audit evidence to be able to draw reasonable conclusions about the valuation of the assets.

There were also failures to exercise sufficient professional scepticism and to prepare adequate audit documentation.  However, none of the breaches of Relevant Requirements were either intentional, dishonest, deliberate or reckless.

Notwithstanding the breaches of Relevant Requirements, the Final Decision Notice issued on 5 November 2019 does not question the truth or fairness of the Company’s 2016 financial statements, which have not been subject to any restatement.

Executive Counsel notes that the Audit Engagement Partner had a hitherto unblemished disciplinary record.  Executive Counsel further acknowledges the co-operation provided by Grant Thornton and the Audit Engagement Partner during the course of the investigation.

Grant Thornton has also taken remedial action including the provision of appropriate training on the use of experts and the challenge of management estimates to all audit staff to prevent reoccurrence of breaches.

The FRC’s Final Decision Notice was issued two years after the opening of the investigation.

Edited by Kiran Khan