One of the “Big Four” professional services firms, EY, has been fined £2.2million and issued with a severe reprimand for failings in its audit of transport company Stagecoach.
The UK’s Financial Reporting Council (FRC) also imposed a £70,000 fine and a severe reprimand against Mark Harvey, the EY partner responsible for the review of Stagecoach’s financial statements.
The watchdog did not allege that Stagecoach’s accounts had been misstated but found that EY had “failed to obtain sufficient appropriate audit evidence and to apply sufficient professional scepticism in their conduct of the audit”.
The sanction relates to the first year that EY audited Stagecoach in 2017. The company was then included in the London Stock Exchange’s mid-cap FTSE 250 index.
FRC said EY, formerly Ernst & Young, had admitted to failings in three areas which included obligations to the company’s defined benefit pension scheme, provisions for insurance claims relating to accidents and an onerous contract provision relating to one of Stagecoach’s East Coast Mainline railway franchise.
Investment in audit quality
The accounting regulator originally imposed a fine of £3.5m but it was cut to just over £2.2m because of mitigating factors and EY’s co-operation, leading to an early resolution of the case. Mr Harvey’s fine was also cut from an initial £100,000.
In a statement EY said it regrettably fell short of the standards it set for itself and it had continued to make signficant investments in audit quality.
It said: “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 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.”
Mr Harvey, who has been contacted for comment, left the company last year, EY confirmed.
Claudia Mortimore, FRC deputy executive counsel, said: “The sanctions imposed reflect the seriousness of the breaches and are intended to improve the quality of future audits.”