UK’s Financial Reporting Council (FRC) has sanctioned EY and its audit partner Christopher Voogd for breaches in the statutory audit of Stirling Water Seafield Finance (SWSF) for the year ended 31 December 2019.
EY exceeded the ten-year limit for auditing a Public Interest Entity (PIE) without a public tender, breaching company law and the FRC’s Revised Ethical Standard 2016, known as Mandatory Firm Rotation (MFR) requirements.
Both EY and Voogd failed to follow proper procedures for continuing the audit engagement, contravening International Standards for Auditing (ISAs), the regulator said.
EY has been fined £325,000 ($430,116.07), reduced from £500,000 for admitting to the breaches early in the proceedings.
The company has also agreed to non-financial penalties including a severe reprimand and a root-cause analysis report, notes the FRC.
Voogd has been fined £32,500, reduced from £50,000, and also received a non-financial sanction.
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By GlobalDataFRC deputy executive counsel Jamie Symington said: “Mandatory firm rotation is a clear requirement for auditors underpinned by company law and the FRC’s Revised Ethical Standard. It is an integral legal safeguard to provide assurance that auditors are demonstrably independent which supports trust and confidence in UK corporate reporting and audit.
“In this case, there were significant failings in relation to mandatory firm rotation requirements at both the engagement and firm level during the continuance stage, which led to EY carrying out audit work despite being ineligible. It highlights the importance of the firm having adequate quality control standards under ISQC 1, as now succeeded by ISQM 1.”
EY’s internal policies were found inadequate in ensuring the firm’s independence and compliance with engagement duration conditions.
The firm has taken steps to prevent future breaches and will work with the FRC to implement further necessary actions.
This incident follows a recent fine imposed on EY by the FRC for audit failures related to the collapsed travel company Thomas Cook for the financial years ending in 2017 and 2018.
