Grant Thornton UK received a “severe reprimand” and reduced penalty of £718,250 (U.S. $981,000) for breaches that arose in the context of audit work on the 2015-17 financial statements of now-collapsed construction firm Interserve.

In addition to the fine, announced Monday, Grant Thornton must report to the U.K. Financial Reporting Council (FRC) on its monitoring program of the quality of audit work on loss-making contracts.

Simon Lowe, the firm’s audit engagement partner, also received a severe reprimand and was fined a reduced £38,675 (U.S. $52,800).

Grant Thornton and Lowe were assessed initial fines of £1.3 million (U.S. $1.8 million) and £70,000 (U.S. $96,000), respectively, before adjustments for “exceptional” cooperation and early admissions. Grant Thornton also took remedial actions to prevent similar breaches in the future, the FRC stated. The regulator further highlighted Lowe’s “good compliance history and disciplinary record.”

Of note, according to the FRC, “certain evidence from Grant Thornton’s audit files relevant to the decision was disclosed to the FRC in confidence and remains subject to the legal professional privilege of the company.” The administrators of Interserve and Interserve Group—which purchased the business from its administrators—“agreed to the FRC’s use of privileged material for the limited purpose of this investigation and any subsequent enforcement proceedings.”

“As such, full details of the adverse findings remain confidential and cannot be published,” the FRC stated. “For this reason, executive counsel’s decision has been published in summary form, without reference to the privileged material relevant to the decision.”

Summary details: In an almost carbon copy of the Carillion collapse, Interserve entered administration in March 2019 after a majority of its shareholders rebelled against a debt cancellation deal that would have seen their investment at even lower levels than the finally agreed upon deal.

Grant Thornton’s audit work at issue concerned “a substantial loss provision” in the financial statements for fiscal years 2015 and 2016 “against an ‘Energy from Waste’ contract for the construction of a waste treatment facility,” the FRC stated.

According to the FRC, Grant Thornton and Lowe admitted to “skepticism failures” concerning “key judgments and accounting estimates relevant to the loss provision, an area identified as a significant risk in the audit.”

Additionally, Grant Thornton and Lowe admitted aspects of the assessments of Interserve’s going concern and goodwill impairment in the financial statements for fiscal year 2017 were “inadequately performed or, in some respects, inadequately documented.”

The investigation did not find any of the breaches resulted in financial statements being materially misstated.

“This is a proportionate package of sanctions in respect of failings over three consecutive audit years,” said Deputy Executive Counsel to the FRC Claudia Mortimore in a statement. “It reflects on one hand the seriousness of certain evidence and skepticism failures in FY 2015 and FY 2016, while recognizing that the adverse findings were limited to discrete areas of large audits.”

The enforcement action is the latest in a series of crackdowns by the FRC regarding deficiencies at major audit firms. In September, Grant Thornton was fined £2.34 million (then-U.S. $3.2 million) for failures in its audits of collapsed café chain Patisserie Valerie between 2015 and 2017.