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Mon 27th Sep 2021 - Grant Thornton fined £4m over Patisserie Valerie audit failures year after year
Grant Thornton fined £4m over Patisserie Valerie audit failures year after year: Accountancy firm Grant Thornton has been handed a £4m fine from the Financial Reporting Council, while sanctions have been imposed against audit engagement partner David Newstead over the collapse of Birmingham-based Patisserie Valerie. An investigation found failures in four areas of audit, often repeated year on year. The fine has been adjusted for aggravating and mitigating factors and discounted for admissions and early disposal to £2.34m. Grant Thornton had acted as auditor for high street retailer Patisserie Holdings since 2007 and signed off audit statements for the financial years ended 30 September 2015, 2016 and 2017. In October 2018, Patisserie Holdings announced that its board had been notified of potentially fraudulent accounting irregularities and the company subsequently entered into administration, leading to the closure of 70 stores and more than 900 job losses. A suite of non-financial sanctions, including reporting to the FRC annually for three years on the impact of GT’s remedial actions on audit quality; a review of the audit practice’s culture relating to challenge; and additional monitoring in relation to bank and cash audit work; and: A declaration that the Statutory Audit Report for each of the three years did not satisfy the Relevant Requirements, together with a published statement in the form of a Severe Reprimand. Newstead will have to pay a fine of £150,000 (adjusted for aggravating and mitigating factors and discounted for admissions and early disposal to £87,750) and serve a three-year ban. Grant Thornton will also pay Executive Counsel’s costs of the investigation. Claudia Mortimore, deputy executive counsel to the FRC, said: “This Decision Notice sets out numerous breaches of Relevant Requirements across three separate audit years, evidencing a serious lack of competence in conducting the audit work. The audit of Patisserie Holdings Plc’s revenue and cash in particular involved missed red flags, a failure to obtain sufficient audit evidence and a failure to stand back and question information provided by management. As a result of this investigation, GT has taken remedial actions to improve its processes and to prevent a recurrence of these types of breaches. The package of financial and non-financial sanctions should also help to improve the quality of future audits.” Grant Thornton and Newstead have accepted failures in their audit work relating to the following four areas: (i) Revenue; (ii) Cash; (iii) Journals; and (iv) Fixed Asset Additions. In each of the three years, the audit work included serious breaches of relevant requirements across the four different audit areas, often repeated year on year, and in relation to several legal entities. The breaches reveal a pattern of serious lapses in professional judgement, failures to exercise professional scepticism, failures to obtain sufficient appropriate audit evidence and / or to prepare sufficient audit documentation. Consequently, each of the FY15, FY16 and FY17 Audits failed in their principal objectives of providing reasonable assurance that the financial statements were free from material misstatement, whether caused by fraud or error. In determining the sanctions to be imposed, Executive Counsel has taken into account the size / financial resources and financial strength of Grant Thornton and the effect of a financial sanction on its business, in accordance with the FRC Sanctions Policy, in addition to the remedial actions already undertaken by Grant Thornton and Mr Newstead. The discounts given for mitigation and settlement (an adjustment of 10%, and a further discount of 35% respectively) reflect the exceptional level of co-operation provided by Grant Thornton and Mr Newstead during Executive Counsel’s investigation.

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