FRC sanctions against Deloitte for SIG audit failings
Deloitte and audit engagement partner Simon Manning have been fined nearly £1 million for failings regarding the statutory audits of SIG plc’s 2015 and 2016 financial statements.
The Financial Reporting Council (FRC) has issued a final settlement decision notice under the audit enforcement procedure and imposed the following sanctions.
- A financial sanction of £1,250,000 (discounted for admissions and early disposal to £906,250);
- A published statement in the form of a severe reprimand;
- A declaration that the 2015 and 2016 audit reports signed on behalf of the firm did not satisfy the relevant requirements; and
- An order requiring the firm to take specified action to mitigate the effect or prevent the occurrence of the contravention.
Against Mr Manning:
- A financial sanction of £50,000 (discounted for admissions and early disposal to £36,250); and
- A published statement in the form of a severe reprimand.
Deloitte and Mr Manning admitted two breaches of relevant requirements in relation to the audit of supplier rebates and cash.
In respect of supplier rebates (financial incentives paid to SIG by its suppliers, to encourage the company to purchase the suppliers’ goods), Deloitte and Mr Manning failed to obtain and document sufficient appropriate audit evidence in respect of the testing of rebate terms as set out in SIG plc’s rebate workbooks, and the testing of rebate debtor balances. They also failed to exercise sufficient professional scepticism by failing to investigate indications that rebate debtor balances may have been overstated.
In respect of cash, Deloitte and Mr Manning failed to obtain sufficient appropriate audit evidence in respect of cheque payments made around the year-end, and failed to exercise sufficient professional scepticism by failing to investigate indications that cheque payments claimed to have been made post-year-end should properly have been regarded as pre-year-end payments.
Deloitte and Mr Manning co-operated with the FRC’s investigation and admitted the breaches. The extent and timing of their admissions is reflected in the 27.5% discount which has been applied to the financial penalties.
Jamie Symington, deputy executive counsel, said: “These breaches concerned two discrete areas of the audit of a particular subsidiary of SIG plc.
“They 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.
“The breaches in respect of supplier rebates were made all the more serious by the fact that the FRC had highlighted these complex supplier arrangements as requiring particular attention from auditors.”