Deloitte fined £1.25m over failings in building supplies firm’s audit

The UK’s accounting watchdog today fined Deloitte and one of its senior auditors over failures in auditing the accounts of building products manufacturer SIG plc.

Britain’s Financial Reporting Council (FRC) fined the Big Four accountancy firm £1.25m, discounted to £906,250 for admissions and early disposal, over its failure to apply sufficient professional scepticism in auditing SIG’s accounts.

The watchdog also fined Deloitte audit engagement partner Simon Manning £50,000, discounted to £36,250, over the failures in the audits of SIG’s 2015/16 financial results.

The FRC said Deloitte and Manning had failed to obtain sufficient audit evidence to verify the existence of supplier rebates and cheque payments that had been recorded in SIG’s accounts.

Deloitte and Manning also failed to apply proper professional scepticism in failing to investigate indications that rebate debtor balances may have been overstated.

The watchdog said the auditor and the Big Four firm also failed to apply proper scepticism to claims that cheque payments had been made after the after the end of the financial year, instead of before.

The FRC said the auditors had failed to uncover overstatements in SIG’s accounts, that arose as a result of intentional misstatements by the construction supplies firms staff, over optimistic forecasting, and simple factual errors.

The FRC noted that Manning previously had a “clean disciplinary record spanning 29 years” as it severely reprimanded both Deloitte and the audit engagement partner and ordered them to pay costs of £120,481.

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.”

A spokesperson for Deloitte said: “We are disappointed that our work on the FY15 and FY16 SIG plc audits – relating to the audit of supplier rebates and cash – fell short of the high standards expected of us.”

“We have learnt from the matters identified by the FRC and remain committed to audit quality and its continuous improvement.”