The UK’s accounting watchdog the Financial Reporting Council (FRC) said it fined Deloitte LLP more than £900,000 over its audits of SIG plc, the Sheffield-based international building materials supplier, for the 2015 and 2016 financial years.
The FRC also fined Deloitte audit engagement partner Simon Manning £50,000, reduced to £36,250, after he also admitted the breaches.
Deloitte and Manning admitted two breaches of requirements in relation to the audit of supplier rebates and cash.
“In respect of supplier rebates (financial incentives paid to SIG by its suppliers, to encourage the company to purchase the suppliers’ goods), Deloitte and Mr Manning failed to obtain and document sufficient appropriate audit evidence in respect of the testing of rebate terms as set out in SIG plc’s rebate workbooks, and the testing of rebate debtor balances,” said the FRC.
“They also failed to exercise sufficient professional scepticism by failing to investigate indications that rebate debtor balances may have been overstated.
“In respect of cash, Deloitte and Mr Manning failed to obtain sufficient appropriate audit evidence in respect of cheque payments made around the year-end, and failed to exercise sufficient professional scepticism by failing to investigate indications that cheque payments claimed to have been made post-year-end should properly have been regarded as pre-year-end payments.
“Deloitte and Mr Manning co-operated with the FRC’s investigation and admitted the breaches.
“The extent and timing of their admissions is reflected in the 27.5% discount which has been applied to the financial penalties.”
Jamie Symington, FRC Deputy Executive Counsel, said: “These breaches concerned two discrete areas of the audit of a particular subsidiary of SIG plc.
“They involved contraventions of requirements which are fundamental to the role of the independent auditor, and were associated with material misstatements in SIG plc’s accounts which had to be corrected.
“The breaches in respect of supplier rebates were made all the more serious by the fact that the FRC had highlighted these complex supplier arrangements as requiring particular attention from auditors.”
A Deloitte UK spokesperson said: “We are disappointed that our work on the FY15 and FY16 SIG plc audits – relating to the audit of supplier rebates and cash – fell short of the high standards expected of us.
“We have learnt from the matters identified by the FRC and remain committed to audit quality and its continuous improvement.”