Did you know there is a giant wheel with the names of the six largest accounting firms in Britain—PwC, Deloitte, EY, KPMG, BDO, and Grant Thornton—in a hidden room at the Financial Reporting Council’s office? When the mood strikes them, FRC employees will gather round the big wheel and place bets as the wheel is spun to decide which of the six firms will be the next to pay a fine of an undetermined amount to the FRC. Apparently the wheel was spun on Friday, and just as it looked like the dial was going to land on PwC, it clicked over to Deloitte at the last moment.
OK, there’s no giant “wheel of fines” at the FRC, although it’s kinda funny to think about them having something so ludicrous. However, Deloitte did get fined £500,000 today, which was reduced to £362,500 after it admitted to its bad auditing, and both the firm and an unnamed audit partner got a tongue-lashing.
The FRC’s media release detailing the sanctions doesn’t reveal the name of the company that Deloitte was auditing and the audit partner’s name is redacted. However, the Financial Times reported that the company is Johnston Press, which was one of the UK’s largest local news publishers until it collapsed into administration in 2018.
The FRC found that Deloitte failed to properly explain why it allowed Johnston Press to reduce a large deficit in its defined benefit pension scheme from £90m to £27m. The body said the deficit was a “significant area of audit risk” and that Deloitte’s quality control review processes had fallen short. It ordered Deloitte to prepare a report explaining how its quality control team checks its audit work for listed companies.
Johnston Press agreed a pre-pack administration deal in November 2018 with large debts, having long caused concerns about its future. Administrators of Johnston Press sold the group’s assets to JPI Media Group, a company set up by the publisher’s lenders, while the Johnston Press Pension Plan, which had about 4,800 members and an estimated deficit of £305m, was taken over by the Pension Protection Fund.
In its release, the FRC claims that Deloitte’s breaches “were not intentional, dishonest, deliberate or reckless” and said the unnamed audit partner “has a good compliance history and disciplinary record.” FT reported that the audit partner left Deloitte in 2018.
[Financial Reporting Council]
Deloitte fined over failures in Johnston Press audit [Financial Times]