Grant Thornton fined £0.7m for Interserve audit failings
Grant Thornton has been fined more than £718,000 by Britain’s accounting regulator for failings in its audit of collapsed government outsourcer Interserve, which fell into administration in 2019.
The sanction was cut from £1.3m for co-operation and an early confession and is the second in five weeks to be levied against the company by the Financial Reporting Council.
In September the FRC slapped Grant Thornton with a £2.3m fine for a “serious lack of competence” over its auditing of failed café chain Patisserie Valerie.
Interserve followed peer Carillion, which fell apart in early 2018, with government officials at the time nervously monitoring the range of firms supplying it with services.
Simon Lowe, the Grant Thornton partner who led the audits, was fined more than £38,000 — reduced from £70,000 — and given a reprimand by the FRC.
Grant Thornton was also ordered to pay investigation costs of £467,000 and to report to the FRC for two years on its monitoring of the quality of its audit work on lossmaking contracts.
Interserve made most of its money from UK government contracts including provision of probation services and building schools, hospitals and offices.
The FRC said the size and nature of its business meant there “was a significant public interest” in the audit of Interserve’s financial statements.
Its findings covered audit work performed on a substantial loss provision in the financial statements for 2015 and 2016 against an ‘Energy from Waste’ contract for the construction of a waste treatment facility.
“There were serious evidence and scepticism failings by the auditors in respect of key judgements and accounting estimates relevant to the loss provision, an area identified as a significant risk in the audit,” the FRC said.
It also probed aspects of Grant Thornton’s assessments of going concern and goodwill impairment in the financial statements for 2017 - both having been identified as areas of significant risk for the audit - where work on elements of the analysis of management’s modelling of the financial data was “inadequately performed or, in some respects, inadequately documented”.
Interserve’s administrators at EY allowed the FRC to use Interserve’s legally privileged files in its investigation and the regulator published only a summary of its findings so the contents of those documents would stay confidential.