FRC sanctions Deloitte for pension scheme audit failings

The Financial Reporting Council (FRC) has issued a final decision notice, imposing sanctions against Deloitte and its former audit engagement partners in relation to a statutory audit of a company’s 2015 financial statements.

The breaches of relevant requirements related to the audit of the company’s defined benefit (DB) pension scheme and the carrying value of the company’s intangible assets.

The FRC stipulated that the respondents had failed to ensure that the review work carried out by the Engagement Quality Control Reviewer (EQCR) was adequately documented, and failed to obtain sufficient appropriate audit evidence to substantia the the cash holding of the DB scheme.

Furthermore, it also stated that the respondents had failed to obtain sufficient appropriate audit evidence in respect of its stress testing of the company’s impairment model.

However, the FRC clarified that the decision notice does not question the truth or fairness of the 2015 financial statements, and that the breaches were "not intentional, dishonest, deliberate, or reckless".

The sanctions, which include a financial penalty of £500,000 and a reprimand, also reflect the fact that Deloitte had already undertaken a number of remedial measures designed to address the shortcomings evident in the work in question.

In addition to this, FRC noted that the former audit engagement partner has a “good compliance history and disciplinary record”, also acknowledging the corporation provided by all respondents throughout the investigation.

As a non-financial sanction, Deloitte will be required to prepare a progress report for the consideration of the FRC’s Audit Quality Review team, setting out its current EQCR work programmes and how such work is documented during the course of the audit of Public Interest Entities.

A reprimand has also been imposed against the former audit engagement partner, with all respondents required to pay the executive counsel’s costs of the investigation.

FRC deputy executive council, Claudia Mortimore, commented: “The proportionate sanctions reflect the failures by the respondents to obtain sufficient appropriate audit evidence and to properly document work in significant areas of audit risk, but also recognise the limited nature of the breaches, which did not call into question the truth or fairness of the financial statements.”

A Deloitte spokesperson commented: “We acknowledge and regret that aspects of our audit work for this entity did not comply with the relevant standards.

"However as the FRC has recognised, these did not call into question the truth or fairness of the financial statements in question.

"Audit quality remains our priority and we continue to enhance our audit quality processes and to seek improvement across all of our work.”

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