Please ensure Javascript is enabled for purposes of website accessibility
February 5, 2023

Deloitte U.K. Screw-Up Results In £1 Million Fine From the ICAEW

A Big 4 firm was fined by a regulator across the pond today, and for once, it wasn’t because of its lack of auditing prowess. BUT! It did involve running afoul of independence rules.

The Financial Times reported:

The administrators to collapsed electricals retailer Comet Group have been handed a record UK insolvency fine of £1m for failures related to their independence.

Deloitte and two of its former partners, Neville Kahn and Christopher Farrington, who both left the Big Four accountancy firm during a five-year investigation, did not ensure that they were objective as administrators, according to the findings of the Institute of Chartered Accountants in England and Wales.

The ICAEW, a professional body, said adequate steps were not taken to make sure that Deloitte’s previous work advising Comet’s owners did not present a conflict of interest in its role as administrator to the lossmaking electricals retailer. Its 2012 collapse left taxpayers footing a £44m bill and resulted in more than 6,000 staff losing their jobs.

Neville Khan

The ICAEW is more of an AICPAish-type of professional membership organization than a regulator, but it does have disciplinary power. Up until today’s fine of Deloitte, the largest insolvency fine doled out to a Big 4 firm by the ICAEW was £250,000 against EY in 2015 over work for failed Greek company Hellas Telecommunications II, according to FT.

When it comes to Big 4 fines, the ICAEW usually isn’t judge, jury, and executioner, but it oftentimes is the beneficiary, according to this article posted last May by the Daily Mail, which quoted one of our favorite Big 4 critics, Prem Sikka:

The Institute of Chartered Accountants in England and Wales (ICAEW) has collected more than £50 million in fines levied on firms that botched audits.

Its coffers were further bolstered yesterday when KPMG was fined £5 million for failing to spot a massive black hole that nearly destroyed the Co-op Bank.

The fines help fund the ICAEW’s work, including its opposition to some proposals to reform the Big Four aimed at improving the quality of audit work.

Critics said the rules are farcical, and mean the chief cheerleader for big auditors is using cash intended to punish them to campaign on their behalf.

Professor Prem Sikka, of the University of Sheffield, said: ‘The KPMG fine is another windfall for the ICAEW.

‘They use that money to reduce the fees that firms pay, and they are campaigning against even the modest reforms that have been proposed.

‘So KPMG know that all this is doing is giving money to a campaign designed to protect them and the rest of the Big Four. The whole situation is a farce. And it just shows how incompetent the accounting industry is.’

The fines are levied by the Financial Reporting Council, a watchdog which polices big accountants. For investigations started before 2016, the money must be paid to the ICAEW. Its accounts show it has been given more than £50 million in penalty payments since 2012.

Fines raised from audit investigations which begin after 2016 go to HM Revenue and Customs.

Christopher Farrington

Back to today’s wrist-slapping: Deloitte was ordered to pay a £925,000 fine, plus the ICAEW’s costs of £890,000, for failing to comply with the ICAEW’s code of ethics, notably to ensure that “accepting an appointment does not create any threats to compliance,” according to FT. The ICAEW also said Deloitte’s procedure for taking on new clients didn’t consider the risk of threats to its independence.

Deloitte has been slammed by Sikka and other Big 4 gadflies for pocketing more than £15 million in fees from the Comet insolvency. Sikka told AccountingWEB last January:

“Deloitte partners charged up to £1,125 per hour for insolvency work on Comet,” he said. “Insolvency began in 2012. Insolvency practitioners have incentives to take as long as they can to finalise liquidation as it pushes up their fees. This industry is out of control.”

Kahn was fined £50,000, and Farrington was fined £25,000.

Latest Accounting Jobs--Apply Now:

There are currently no vacancies.

Have something to add to this story? Give us a shout by email, Twitter, or text/call the tipline at 202-505-8885. As always, all tips are anonymous.

Related articles

Deloitte's San Francisco office

We Had to Scroll Really Far Down to Find a Big 4 Firm on This Glassdoor Best Places to Work List

Life at Deloitte was trumpeting an appearance on Glassdoor’s latest Best Places to Work list yesterday so naturally we swung over to the list to see what’s what. At @Deloitte, we’re committed to our people’s professional & personal well-being. That’s why we’re thrilled our organization has been named one of the Best Places to Work […]

Deloitte "if you just follow, you'll never lead" sheep billboard

Deloitte US Picked a New CEO and Chair, Sent Out an Email

How many times can we reuse this stupid Deloitte billboard picture? Deloitte US announced this morning that Jason Girzadas has been selected as chief executive officer and Lara Abrash has been selected as the chair of the board, beginning June 4, 2023, subject to a partner ratification vote. Jason succeeds outgoing CEO Joe Ucuzoglu who […]