The UK’s audit cops were itchin’ to dole out some discipline today, and the butts that were paddled belong to ex-audit partner Mark Harvey and his former employer EY.
Accounting firm EY has been fined £2.2m and issued with a severe reprimand for failings in its audit of Stagecoach, the London-listed transport company.
The UK’s Financial Reporting Council also imposed a £70,000 fine and a severe reprimand against Mark Harvey, the former head of EY’s Scottish business who was the partner responsible for the review of Stagecoach’s financial statements.
EY and Harvey must also pay almost £600,000 in costs incurred by the regulator.
After spending nearly 25 years at EY, the last five of which as EY’s managing partner in Scotland, Harvey noped on out of there in July 2020 to become CFO of car dealer Arnold Clark, according to his LinkedIn profile.
You would think someone in a senior and supervisory position like Harvey would not want to be associated with shoddy audit work that resulted in a “serious lack of competence,” but I guess that wasn’t the case.
The FRC said:
At all material times Stagecoach was a FTSE 250 international transport company, which operated buses, trains, trams and express coaches. 2017 was the first year that EY audited Stagecoach.
The failings admitted by the Respondents [EY and Harvey] relate to three specific areas of the Audit: (1) defined benefit pension scheme obligations; (2) provisions for insurance claims relating to accidents; and (3) an onerous contract provision relating to the East Coast Mainline railway franchise. All three areas of the Audit concerned material balances and had been identified by the Respondents as areas of significant risk requiring a heightened audit response.
The most serious deficiencies in audit work concerned the lack of sufficient evaluation and challenge of the work of management’s and the Respondents’ respective experts, and the associated lack of proper challenge of management about material assumptions underlying the Financial Statements. Whilst it is not alleged that the Financial Statements were in fact misstated, in several material instances, the Respondents failed to obtain sufficient appropriate audit evidence and to apply sufficient professional scepticism in their conduct of the Audit.
Further, the content and extent of the audit documentation which the Respondents were required to prepare was of a low quality which did not record the full extent of the procedures and judgements made.
The breaches of Relevant Requirements were not intentional, dishonest, deliberate or reckless.
Just really, really dumb and/or lazy mistakes that Big 4 auditors shouldn’t be making.
EY fined more than £2m over Stagecoach audit failings [Financial Times]