EY and Harvey fined over Stagecoach audit
Mark Harvey: moved on
Big Four accountant EY has been fined £3.5 million and former audit engagement partner and Scotland senior partner Mark Harvey £100,000 over an audit of Stagecoach accounts in 2017.
EY was issued with a severe reprimand by the Financial Reporting Council and a requirement to report to the FRC for one year in respect to its audit work on onerous contract provisions.
There were admissions to failings in specific areas of the Stagecoach audit, including provisions for insurance claims relating to accidents, defined pension scheme obligations and an onerous contract provision relating to the East Coast Mainline railway franchise, according to the FRC.
“Whilst it is not alleged that the Financial Statements were in fact misstated, in several material instances, the respondents failed to obtain sufficient appropriate audit evidence,” the regulator said.
In a statement, EY said: “Audit underpins trust and confidence in the economy and delivering high quality audits is an absolute priority for us. Regrettably, on this occasion, we fell short of the standards we set for ourselves, and the standards expected of us by the FRC and society.
“We have cooperated with the FRC throughout their investigation, take their findings very seriously and have worked hard to rectify the issues identified. No findings were raised in the FRC’s review of our most recent audit of the company, for the 2020 year-end.
“We continue to make significant investments in audit quality across EY and, on 1 July this year, we established a new UK Audit Executive Committee and Audit Remuneration Committee.
“These will support our focus on delivering the highest levels of audit quality by building a culture of challenge and providing independent oversight of our UK audit practice.
“We remain committed to working with the FRC and other stakeholders to enhance standards across the audit profession, and to ensure the UK’s corporate governance and audit framework remains world leading.”
EY’s financial penalty is reduced to £2.2m because the company co-operated with officials and put in place systems to try to ensure similar mistakes are not repeated in 2018.
Mr Harvey was also given a lower penalty for admitting to the problems early and will pay £70,000.
The FRC has also required the two respondents to pay £596,735 to cover the costs of the investigation.
There was no immediate reaction from Mr Harvey who left the practice last year to become chief financial officer at car dealer Arnold Clark.
Mr Harvey, who was replaced by Ally Scott, steered EY Scotland to annual revenue of £170m from £100m when he became managing partner in 2015.
Ernst & Young is already under fire over its audit of Wirecard AG in Germany. The UK government has pledged to improve the quality of audits done by EY and its peers following a series of past scandals.
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