The UK’s Financial Reporting Council (FRC) has sanctioned BDO for “significant and serious” failures in the 2019 audit of collapsed construction company NMCN.
The regulator also fined audit partner Geraint Jones, who signed off the audit.
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Initially, BDO was fined £2m, but the penalty was cut by 5% for what the FRC called exceptional cooperation. The penalty amount was again reduced by a further 30% for admissions and early settlement, leaving £1.33m payable.
The company also received a severe reprimand, and the FRC formally stated that the 2019 audit report issued in BDO’s name did not comply with the required auditing standards.
BDO has paid the agreed costs of the investigation.
Jones was fined £75,000, which was later reduced to £49,875 after applying the same discounts for cooperation and early settlement.
He too received a severe reprimand and a declaration that the 2019 audit report he signed failed to meet relevant requirements.
NMCN, a construction and consultancy group working on major building and national infrastructure schemes across the UK, went into administration in October 2021.
The FRC said the main failings related to BDO’s audit of NMCN’s long-term contracts.
Although the audit team had identified significant risks around revenue and profit recognition, and the recoverability of contract assets, trade receivables and retentions, the regulator found that the audit work performed in response was inadequate.
“The audit work performed in response to these significant risks was deficient and the Respondents failed to obtain reasonable assurance concerning whether the financial statements as a whole were free from material misstatement,” the FRC statement said.
Additionally, the FRC found failings in the going concern assessment, including a lack of professional scepticism.
The regulator concluded that BDO and Jones did not obtain sufficient appropriate evidence on whether there was material uncertainty over NMCN’s ability to continue as a going concern.
The regulator also acknowledged that the audit was carried out in difficult conditions during the first Covid-19 lockdown and following the unexpected withdrawal of the original audit engagement partner.
FRC deputy executive counsel Jamie Symington said: “The breaches in this case are fundamental to audits of companies delivering major infrastructure contracts, where particular care needs to be taken in the audit of revenue and profits from the performance of long‑term contracts.
“The statutory auditors failed to critically assess evidence, challenge management’s assertions and exercise professional skepticism in important areas including going concern.”
The FRC recently fined two former Carillion finance directors, closing its last investigation into the company’s collapse.
