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Grant Thornton fined £2.3m over AssetCo audits

[LONDON] Britain's accounting watchdog has fined Grant Thornton £2.3 million (S$4.11 million) for failing to challenge "fictitious revenues" at listed fire and rescue services firm AssetCo.

The Financial Reporting Council (FRC) said the accounting firm and one of its now retired partners, Robert Napper, have admitted misconduct and agreed to fines and other sanctions. "The respondents have admitted that their failings arose as a result of the significant and widespread lack of professional competence and due care in the performance of the audits," the FRC said in a statement.

It follows an investigation by the FRC into audits of AssetCo's financial statements for the financial years that ended in March 2009 and March 2010.

The investigation uncovered "flawed judgments", the FRC said. "The respondents have further accepted that the root cause of many of the defects in their audit work was a significant failing in the application of professional scepticism, which should be at the core of the work of statutory auditors," the watchdog said.

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Since the 2007-09 financial crisis, Britain and the European Union have introduced tougher rules to avoid overly familiar relations building up between companies and their auditors.

Companies are now required to switch accounts on a regular basis, ending a practice where some firms have used the same accountancy firm for decades.

Grant Thornton's fine was reduced from £3.5 million after a discount. The accountancy firm was also issued with a severe reprimand.

Mr Napper was banned from practising accountancy for three years and fined £130,000. Grant Thornton also agreed to pay £200,000 towards the FRC's legal costs.

The watchdog said that AssetCo's six pounds per share price in 2009 reflected an "inflated balance sheet and included some significant revenue which was fictitious".

Such revenue would not have been reported had it not been for the misconduct identified, and the share price fell to £1 by March 2011.