Deloitte received a penalty of 906,250 pounds (U.S. $1.1 million) for evidence failures regarding supplier rebates and cash uncovered in its 2015 and 2016 financial year audits at British-based specialist building product distributor SIG.
The Big Four firm was reprimanded by the U.K. Financial Reporting Council (FRC) on Thursday. It received a 27.5 percent discount on an initial penalty of £1,250,000 (U.S. $1.5 million) for admission and cooperation, including a declaration its FY2015 and FY2016 audit reports at SIG did not meet relevant requirements.
Simon Manning, the Deloitte engagement partner on the audit, received a discounted penalty of £36,250 (U.S. $43,600) and reprimand from the FRC.
The details: Deloitte began serving as SIG’s auditor in 2002. Manning became senior auditor on the engagement from 2013. The deficiencies in the relevant audits concerned subsidiary SIG Trading Limited.
The firm fell short in its responsibility to form an opinion on whether SIG’s FY2015 and FY2016 financial statements showed a true and fair view of its financial position when it failed to obtain and document sufficient appropriate audit evidence regarding the testing of rebate terms set out in SIG’s rebate workbooks and the testing of rebate debtor balances, according to the FRC. Indications SIG’s rebate debtor balances might have been overstated went overlooked, the regulator noted.
SIG would restate its FY2015 and FY2016 figures as part of its FY2017 statements because of overstatements of rebate balances, according to the FRC’s decision notice. The relevant restatements were only material in FY2016.
Deloitte and Manning were also faulted for failing to obtain appropriate evidence regarding check payments. This included “failing to investigate indications that check payments claimed to have been made post-year-end should properly have been regarded as pre-year-end payments,” the FRC stated.
The regulator noted the breaches were not intentional or dishonest by Deloitte and Manning was not found to be negligent.
“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,” a Deloitte UK spokeswoman said in an emailed statement. “We have learnt from the matters identified by the FRC and remain committed to audit quality and its continuous improvement.”