Watchdog slaps BDO with £2m fine over serious audit failings
Accountancy giant BDO and the former head of its London audit group have been slapped with sanctions by the accounting industry watchdog over its work on the construction engineering firm NMCN.
The Financial Reporting Council (FRC) imposed sanctions on the firm and its former partner, Geraint Jones, for significant and serious breaches during the 2019 statutory audit of NMCN.
Former London-listed NMCN was a major UK construction and national infrastructure consultancy group until it went into administration in October 2021. The regulator opened a probe into the group’s auditor in the same month.
On Thursday, the FRC revealed it had identified “numerous and pervasive breaches” centred on a failure to obtain sufficient and appropriate audit evidence. This included the auditors’ failure to properly assess risks related to revenue, profit recognition, and the recoverability of contract assets, trade receivables, and retentions.
The watchdog also found that the team failed to apply adequate professional scepticism, meaning they did not gather enough evidence to determine if NMCN’s status as a going concern was under material uncertainty.
BDO was NCMN’s auditor for 10 years. But the audit at the heart of this probe took place under different circumstances, including the first Covid-19 lockdown and the unexpected withdrawal of the original audit engagement partner.
£2m fine reduced to £1.3m
BDO and Jones have admitted breaches of relevant requirements in multiple areas of the 2019 audit of NMCN.
The watchdog noted that the breaches were not intentional, dishonest, deliberate, or reckless. There is no assertion that the financial statements were factually misstated.
The firm was issued with a £2m financial penalty, reduced to £1.3m. Meanwhile, Jones, who resigned from BDO in April after 20 years at the firm, was handed a £75,000 penalty, reduced to £49,875.
Both parties received financial penalties that were reduced by an “exceptional level of cooperation” (a 5 per cent reduction) and by early admissions/settlements (a 30 per cent discount). BDO also agreed to cover the investigation costs.
Comment on the fine, a BDO spokesperson said: “The 2019 audit of NMCN plc fell below the standards that we expect.”
“We have made significant structural changes within our audit practice in the six years since this audit, and we remain committed to delivering consistency in the high quality of our audits. The FRC has noted the exceptional level of our cooperation with its investigation,” they added.
Back in November, the FRC issued BDO with a £6.5m fine after a senior manager admitted to faking audit evidence.