Three firms fined, sanctioned over LCF audits
By Josh White
Date: Tuesday 07 May 2024
(Sharecast News) - The Financial Reporting Council (FRC) imposed sanctions on three audit firms on Tuesday, following an investigation into their audits of London Capital & Finance (LCF).
It said the audits in question pertained to the financial years ending in April 2015, 2016, and 2017.
The FRC said Oliver Clive & Co (OCC) and audit engagement partner Emma Benjamin faced sanctions over the 2015 audit, having admitted to 10 breaches of relevant requirements, including issues with ethical standards, audit planning, risk assessment, and quality control.
OCC was issued a financial penalty of £42,000 and a severe reprimand, while Emma Benjamin faced a £14,000 financial sanction and a similar reprimand.
For the 2016 audit, PricewaterhouseCoopers (PwC) and audit engagement partner Jessica Miller admitted to eight breaches related to risk assessment, professional scepticism, and auditing procedures.
PwC's sanctions included a £4.9m financial penalty, a severe reprimand, and a requirement to take specified actions to prevent future breaches, while Jessica Miller faced a £105,000 financial sanction and a severe reprimand.
Ernst & Young (EY) and audit engagement partner Neil Parker were meanwhile sanctioned for breaches in the 2017 audit.
EY admitted to six breaches, resulting in a £4.41m financial penalty for the firm and a £47,250 financial sanction for Neil Parker.
Both EY and Parker also received severe reprimands.
LCF faced serious financial difficulties before going into administration in January 2019, owing millions to individual bondholders.
The Serious Fraud Office initiated a criminal investigation into the company's activities.
While the auditors cooperated with the FRC's investigation and were not found to have acted dishonestly or recklessly, their audits failed to provide reasonable assurance regarding the accuracy of LCF's financial statements.
The FRC said the sanctions considered factors such as the severity of the breaches and audit firms' financial strength.
Despite the sanctions, it was not asserted that the auditors would necessarily have detected the underlying issues with LCF if the breaches had not occurred.
"In each of these three audits the auditors failed to identify and assess the risks of material misstatement through understanding LCF's business," said deputy executive counsel Jamie Symington.
"These breaches are made considerably more serious by the fact that all of the auditors knew they were auditing an expanding business which was engaged in selling unregulated financial products to retail investors, and that potential investors might place reliance on the clean audit opinions."
Reporting by Josh White for Sharecast.com.
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