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BDO has been fined £2 million for its audit of the firm in 2019, while Mr Jones recieved a financial penalty of £75,000. 

The accountancy watchdog said te breeches in this case were “significant and serious”, finding numerous and pervasive breaches that were fundamental to BDO’s audit work, commonly involving shortcomings in obtaining sufficient appropriate audit evidence.

NMCN (which entered into administration in October 2021) operated as a construction and consultancy services group delivering major building and national infrastructure projects across the UK. Its shares were listed on the London Stock Exchange.

Its core business operated through long‑term contracts. The circumstances of the audit, namely the first COVID-19 lockdown and the original Audit Engagement Partner having unexpectedly to withdraw from the audit, were challenging. 

BDO and the replacement Audit Engagement Partner, Mr Jones, have admitted breaches of Relevant Requirements in multiple areas of the 2019 audit of NMCN.

The breaches occurred predominantly within the audit work on NMCN’s long‑term contracts. The Respondents had identified significant risks of material misstatement in respect of revenue and profit recognition on long‑term contracts and the recoverability of contract assets, trade receivables and retentions. 

The audit work performed in response to these significant risks was deficient and the Respondents failed to obtain reasonable assurance concerning whether the financial statements as a whole were free from material misstatement.

There were further breaches in the audit of going concern, including a failure to meet the requirement to plan and perform the audit with professional skepticism. Consequently, BDO and Mr Jones did not obtain sufficient appropriate audit evidence to be able to conclude on whether NMCN’s going concern status was subject to material uncertainty.

While the breaches were serious and significant, it is not suggested that the breaches were intentional, dishonest, deliberate or reckless. Nor is it asserted that the Financial Statements were in fact misstated. Furthermore, both BDO and Mr Jones gave an exceptional level of cooperation with the investigation, which Executive Counsel took into account in determining the sanctions.

The financial penalty against BDO was adjusted for the mitigating factor of exceptional cooperation by a reduction of 5% and further discounted for admissions and early disposal by 30% so that the financial penalty payable is £1,330,000. Mr Jones’s penalty has also been adjusted by 5% due to his “exceptional cooperation” and further discounted for admissions and early disposal by 30% so that the financial penalty payable is £49,875.

BDO has also paid the agreed costs of Executive Counsel’s investigation.

Jamie Symington, of the FRC deputy executive council, said: “The breaches in this case are fundamental to audits of companies delivering major infrastructure contracts, where particular care needs to be taken in the audit of revenue and profits from the performance of long‑term contracts. The statutory auditors failed to critically assess evidence, challenge management’s assertions and exercise professional skepticism in important areas including going concern.

“The Respondents demonstrated an exceptional level of cooperation with the investigation. This, together with their early admissions, enabling the matter to be resolved by settlement, has entitled them to a substantial reduction of the financial penalty imposed.”

A BDO spokesperson told Scottish Financial News: “The 2019 audit of NMCN plc fell below the standards that we expect.

“We have made significant structural changes within our audit practice in the six years since this audit, and we remain committed to delivering consistency in the high quality of our audits.”