Grant Thornton and partner fined for Interserve audit failings

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Audit giant, Grant Thornton, and its audit engagement partner, Simon Lowe, have been heavily fined and severely reprimanded by the Financial Reporting Council (FRC) for audit failings relating to Interserve plc. The firm and Mr Lowe will personally need to pay these fines as regulator-imposed penalties are not generally covered by professional indemnity insurance policies.

Major UK outsourcing business Interserve spectacularly collapsed in 2019 after being given a clean bill of health by Grant Thornton in its 2015-17 audits.

The FRC says that Grant Thornton and Mr Lowe failed to exercise professional scepticism in relation to key judgements and accounting estimates relating to loss provision. The regulator also said that the auditor’s assessment of going concern and goodwill impairment had been inadequately performed in some areas.

The FRC accepts that the failings were limited to ‘discrete areas of the audit’ and did not result in the accounts being materially misstated.

Claudia Mortimore, Deputy Executive Counsel to the FRC, said: “This is a proportionate package of sanctions in respect of failings over three consecutive audit years. It reflects on one hand the seriousness of certain evidence and scepticism failures in FY 2015 and FY 2016, while recognizing that the Adverse Findings were limited to discrete areas of large audits.”

A spokesperson for Grant Thornton UK LLP said: “Whilst we acknowledge the regulator’s findings that certain limited aspects of our work were below expectations in this instance, it’s important to note that the findings did not assert that the company’s accounts were materially misstated in respect of these matters. We have invested significantly in our audit practice since the period in question, to drive consistently high quality and are now seeing the positive outcome of this investment.”

Grant Thornton was fined £1.3 million, reduced to £718,250 and Mr Lowe £70,000, reduced to £38,675. The fines were cut due to exceptional cooperation and early admission by the firm and Mr Lowe.

James Burgoyne of Brunel Professions explains that fines and regulator-imposed penalties have teeth as they are not generally covered by professional indemnity insurance policies: “Covering fines would remove their effect as a deterrent so it is against public policy. This is underlined by an explicit exclusion of fines and penalties in PI policies,” he said. Mr Burgoyne also added that a penalty made by a regulator is not a civil or legal liability, so it does not trigger main insuring clauses under PI policies.

The FRC has published an announcement and summary of its final decision notice on its website. Reports about the fines have been published by Accountancy Today, Reuters and Construction Manager.

Professionalindemnity.com is owned by Brunel Professions, which is a leading professional indemnity insurance broker in the UK. Click here to get a quote or call 0345 450 1074 to speak to a broker.

 

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