The UK accounting watchdog has ordered Deloitte and one of its partners to pay more than £1mn for failures in its audits of insulation and construction group SIG six years ago.
The Financial Reporting Council said on Thursday it had fined Deloitte £906,250 and handed audit partner Simon Manning a £36,250 penalty. It also ordered the auditors to pay £120,000 to cover costs of the investigation, which was launched in 2018.
The sanctions relate to the way Deloitte dealt with supplier rebates and cash in its audits of SIG in the financial years ending in 2015 and 2016, which breached regulatory requirements.
“[The breaches] involved contraventions of requirements which are fundamental to the role of the independent auditor, and were associated with material misstatements in SIG PLC’s accounts which had to be corrected,” said FRC deputy executive counsel Jamie Symington.
The FRC said that Deloitte and Manning had “failed to obtain and document sufficient appropriate audit evidence” on supplier rebates — payments to SIG by suppliers to encourage it to buy their products.
The auditors also showed insufficient professional scepticism by failing to investigate indications that some balances relating to rebates may have been overstated, the FRC found.
The regulator said scepticism was also lacking in the audit of cash, with Deloitte failing to investigate indications that cheque payments claimed as having been made after the financial year ended should have been regarded as pre-year-end payments.
Symington said the problems with how the rebates were audited “were made all the more serious by the fact that the FRC had highlighted these complex supplier arrangements as requiring particular attention from auditors”.
The fines had been reduced by 27.5 per cent from £1.25mn and £50,000 respectively because of Deloitte and Manning’s co-operation with the FRC and their early admissions of wrongdoing, the watchdog said. They did not qualify for a larger discount because their admissions were made close to the start of the case “but not at the earliest possible point in time”, according to the FRC’s decision notice.
Deloitte was also ordered to take action to prevent a repeat of the failings.
The firm is the subject of separate FRC investigations into its audits of car dealership Lookers and transport group Go-Ahead. It was fined £2mn in April after admitting rule breaches during its audit of outsourcing group Mitie. In 2020 it was hit with a record £15mn fine for serious misconduct in its auditing of Autonomy, the former FTSE 100 technology group.
Deloitte said it was “disappointed” that its work “fell short of the high standards expected of us”. It added: “We have learnt from the matters identified by the FRC and remain committed to audit quality and its continuous improvement.”