The FRC's Enforcement Committee identified significant departures from expected auditing standards, including uncorrected material errors in financial statements and insufficient audit evidence.
Britain’s Financial Reporting Council (FRC) has sanctioned Grant Thornton UK, levying a £40,000 fine against the major accounting firm for significant failures in its audit of a local authority’s pension fund for the fiscal year ending March 31, 2021.
The FRC’s enforcement action stems from an inspection by its Audit Quality Review team that uncovered several lapses in Grant Thornton’s audit work, which the regulator deemed a “significant departure” from expected auditing standards.
Specifically, the FRC cited two uncorrected material errors that appeared in the audited pension fund financial statements included in the local authority’s annual report, though not in the pension fund’s own statements. Grant Thornton also failed to obtain sufficient audit evidence to verify the accuracy of the pension fund’s investment valuations.
In its disciplinary ruling, the FRC’s Enforcement Committee determined the deficiencies represented a lack of effective oversight and management of Grant Thornton’s local audit functions. This created potential risks for public stakeholders, employees, pensioners and creditors relying on the audited financial information.
The Committee initially proposed a £50,000 penalty against Grant Thornton but reduced it by 20% to £40,000 after considering the firm’s cooperation and mitigating factors.
Beyond the monetary penalty, Grant Thornton agreed to undertakings to improve its audit procedures, which the FRC will monitor for compliance. The firm did not contest the FRC’s findings.
In a statement, a Grant Thornton spokesperson said: “We note the findings of the regulator’s investigation, with which we have cooperated throughout, and regret the errors identified. As a leading provider of audit and related assurance services to the public sector, we remain committed to high-quality work and have taken steps to further improve this.”
The disciplinary case highlights the FRC’s ongoing scrutiny of deficient audits, particularly in the public sector realm. It remains the latest instance of the regulator flexing its enforcement muscles and demonstrates audit firms are not immune from punitive sanctions for substandard work.
