Grant Thornton has been fined £1.3m, adjusted to just under £720,000 for mitigating factors and admissions, in relation to its audits of Interserve’s 2015 and 2017 financial statements.
Interserve collapsed into administration in 2019 after shareholders rejected a rescue deal for the business.
Grant Thornton was subsequently investigated by the Financial Reporting Council (FRC) for its auditing of financial statements for 2015, 2016 and 2017.
Now the accounting business has been given a “severe reprimand” and the FRC has asked it to make a declaration that its statutory audit reports for the audits “did not satisfy the relevant requirements”. Grant Thornton will also be required to report to the FRC on its monitoring programme of the quality of audit work on loss-making contracts.
The firm’s audit engagement partner Simon Lowe was also hit with a financial sanction of £70,000, adjusted for mitigating factors and admissions to £38,675.
FRC investigated Grant Thornton’s audit work relating to a substantial loss provision in the financial statements for 2015 and fiscal year 2016 against an ‘energy from waste’ contract for the construction of a waste treatment facility. The FRC said: “There were serious evidence and scepticism failings by the auditors in respect of key judgements and accounting estimates relevant to the loss provision, an area identified as a significant risk in the audit.”
It also criticised inadequate performance or documentation on aspects of the auditors’ assessments of going concern and goodwill impairment in the financial statements for 2017.
However, the FRC noted that the breaches did not result in the financial statements being materially misstated and the breaches were limited to discrete areas of the audit. It also praised Grant Thornton and Lowe’s “exceptional cooperation” in the investigation, and their early admissions. Grant Thornton has also taken remedial actions to prevent similar breaches in the future.
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 recognising that the adverse findings were limited to discrete areas of large audits.
“We note the exceptional cooperation provided by the respondents throughout the investigation and this has been reflected in the discount to the financial sanctions. Some of the evidence relevant to this decision is legally privileged and we acknowledge the assistance provided by the administrators of the company and Interserve Group Limited in agreeing that the material could be used in confidence for the limited purposes of our investigation and any subsequent enforcement proceedings.”
