The Financial Reporting Council (FRC) has fined Grant Thornton £1.3m for the statutory audits of the 2015-2017 financial statements of Interserve plc
Interserve plc, now in administration, was a large, high-profile business with a number of public-sector clients and there was significant public interest in the audit conducted.
The following sanctions have been imposed:
Grant Thornton:
- A financial sanction of £1.3m, adjusted for mitigating factors and admissions / early disposal to £718,250.
- Non-financial sanctions, comprising of a requirement for Grant Thornton to report to the FRC on its monitoring programme of the quality of audit work on loss-making contracts.
- A severe reprimand and declaration that the audits did not satisfy the relevant requirements.
Simon Lowe, audit engagement partner:
- A financial sanction of £70,000 adjusted for mitigating factors and admissions / early disposal to £38,675.
- Non-financial sanctions comprising a severe reprimand and a declaration that the audits did not satisfy the Relevant Requirements.
The adverse findings against Grant Thornton and Simon Lowe concern the audit work performed on:
- A substantial loss provision in the financial statements for FY 2015 and FY 2016 against an ‘Energy from Waste’ contract for the construction of a waste treatment facility. 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.
- Aspects of the auditors’ assessments of going concern and goodwill impairment in the financial statements for FY 2017 (both having been identified, at planning stage, as areas of significant risk for the audit), where work on elements of the analysis of management’s modelling of the financial data was inadequately performed or, in some respects, inadequately documented.
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.”
You can view the summary of the Final Decision Notice here.
