The top UK accounting scandals of 2019

The top UK accounting scandals of 2019

Looking back on the financial scandals, auditing failures and fraudulent accounting of 2019 that made headlines and instigated industry change.

The top UK accounting scandals of 2019

This year may have been one of incredible growth and change for accountancy firms, but it was also an incredibly scandalous one. From Big Four fines to individual flubs, these are the biggest accounting scandals of 2019.

FRC dishes out discipline

In the UK, the Big Four all fell short of the Competition and Markets Authority’s quality audit requirements during 2019, with none of the firms able to surpass the watchdog’s 90% ‘good quality audit’ target.

Separately, many of the Big Four also found themselves at the centre of both the CMA and FRC’s wrath throughout the year. Deloitte’s past mistakes with its 2009 – 2011 audits of Autonomy have finally come to a head, with the FRC holding a tribunal to determine what punishments to inflict on the powerhouse for its “recklessness.”

In July, Deloitte UK was also fined £6.5m by the FRC for its 2011 and 2012 audit of Serco’s Geografix division, after admitting misconduct. The firm’s audit engagement partner for Serco Geografix, Ross Howard, was also made to pay £78,000 and was reprimanded for the 2012 audit.

Additionally, KPMG was fined £5m by the FRC in 2019 for a separate matter, where a £1.5m black hole was found in the accounts of the Co-Op Bank – which KPMG had audited for 40 years, before this discovery forced the bank to move to EY. While these initial scandals happened years back, the punishment is only just being delivered.

Meanwhile, PwC had to swallow a bitter pill about its Redcentric audits, admitting its mistakes to the FRC and receiving a £4.55m fine in return. Additionally, two PwC partners were each fined £200,000 for their part in the audit, which was negotiated down to £140,000 apiece.

Bullies say ‘bye-bye’ at KPMG UK

KPMG UK’s Head of Deal Advisory, Sanjay Thakkar, ‘stepped down’ following allegations of Thakkar’s inappropriate behaviour and bullying, although several employees said they still felt their complaints about Thakkar—some dating back to 2017—were not taken seriously.

This was followed by several high-ranking members of the firm, including partners Maggie Brereton and Ina Kjaer, speaking out about the company’s pattern of behaviour and ultimately leaving.

Household names find errors galore

Of course, nobody can forget EY’s experience with now-defunct Thomas Cook, where after taking over for PwC in 2017, numerous auditing mistakes were found to contribute to the travel company’s September demise.

Another household name, the trucking company Eddie Stobart, found itself halting stock sales in August after a £2m accounting-based error was found in its 2018 accounts. While the specific mistake was never publicly announced, it led the chief executive to step down from his position in August and affected the company’s stock for months.

In December, luxury fashion chain Ted Baker discovered its stock value was overstated by up to £25m in a severe blow to its auditor, KPMG. Upon this discovery, the fashion chain announced an independent review into the issue with a law firm and independent auditors.

Later in the month, M&C Saatchi’s accounts were found to contain errors over £11.4m, with more potentially dating back five years. While KPMG resigned from its audit role early in 2019, the mistakes were only found during an independent review by PwC.

How have these scandals affected the industry?

As these scandals have progressed, more attention has been placed on the accountancy industry as a whole – not just the Big Four. As such, it’s important to learn from the mistakes of others and turn a critical eye to one’s own business.

Public reputation is incredibly important, especially in a business that revolves around handling a client’s finances. Once that reputation is damaged, it’s difficult to rebuild that client trust.

While not impossible, it takes PR prowess and, normally, a great deal of money – and a more economical way to handle it is to never have made those mistakes in the first place. Being aware of a firm’s finance knowledge, employee skills and company culture are all an important part of staying on top.

If a junior staff member complains about harassment, the ethical thing to do is investigate it and handle it promptly, rather than delaying an investigation for months. Likewise, if a mistake is found in an audit, address it immediately with the proper regulatory bodies and clients instead of trying to cover it up.

However, there are positives to these situations, as well. When someone is faced with fine, the expectation is they will actively try to avoid receiving another fine in the future – something that the FRC has banked on and has worked for several lower-level mistakes in 2019.

Additionally, mistakes within the Big Four have opened up the door for small and mid-tier firms to show their abilities to potential clients. Some FTSE 250 companies moved their audit to mid-tier firms following a slew of Big Four scandals, and one even gave their business to an objectively small firm.

Overall, these scandals allow the industry to learn from itself and work harder in the future to be better than it was. It creates a difficult situation, but one that doesn’t have to spell doom and gloom for the accounting industry.

Of course, those who don’t learn from history are doomed to repeat it. See you next year.

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