Failure to hit targets
Watchdog attacks auditors’ failure to improve quality of work
Auditing of the Patisserie Valerie chain fell below the required standard (pic: Terry Murden)
All Britain’s biggest accounting firms failed to hit audit quality targets set by the regulator for the second year in a row, with Grant Thornton singled out for particular criticism.
The former auditor of cake chain Patisserie Valerie, at the centre of an alleged accounting fraud, has been placed under increased scrutiny after the industry watchdog called the quality of its work “unacceptable”.
Grant Thornton was the worst performer in the Financial Reporting Council’s annual review of audits carried out by the UK’s big accountants. The FRC said half of the eight Grant Thornton audits it inspected for 2017/18 required significant improvement. It said Grant Thornton has been showing “disappointing results” for the last five years.
The FRC said EY, KPMG, Deloitte and PwC, known as the Big Four, together with BDO, Grant Thornton and Mazars from the next tier down, all failed to hit a target that 90% of audits reviewed by the regulator were good or required only limited improvements.
Only 75% of the sample of audits from among Britain’s 350 top listed companies for the year ending December 2017 met the 90% target overall as accountants failed to challenge information clients gave to them, the FRC said. The FRC found cases in all seven firms where auditors had failed to challenge management sufficiently on judgemental issues. KPMG, Grant Thornton and PriceWaterhouseCoopers are subject to tougher supervision.
The audit of Patisserie Valerie was among those looked at by the FRC. Other Grant Thornton audits inspected by the regulator included the outsourcing company Interserve, which was sold in March after administrators were appointed, and Woodford Patient Capital Trust, the embattled investment trust run by the former star investor Neil Woodford. The FRC also reviewed Grant Thornton’s audit of Sports Direct.
Stephen Haddrill, chief executive of the FRC, said: “At a time when the future of the audit sector is under the microscope, the latest audit quality results are not acceptable.Audit firms must identify the causes of their audit shortcomings and take rapid and appropriate action to improve quality. Our latest results suggest that they have failed to achieve this in recent years.”
Grant Thornton said it had published details of planned improvements to its audit practice and was working with the FRC to implement its plan. “Some of our past audits for large listed firms have fallen short of the standards we expect,” the firm said.