The Financial Reporting Council (FRC) has issued a report in respect of Grant Thornton’s audit of Patisserie, the failed restaurant chain chaired by Luke Johnson. The FRC is the UK’s accounting watchdog, looking at corporate reporting in the FTSE 350 and monitoring auditors’ performance.
Grant Thornton has been fined £4m, reduced to £2.31m for “early admission” and “exceptional co-operation”. The report states that the auditor failed to conduct proper testing in respect of revenue, cash, fixed asset additions and journal entries (this last being a technical accounting term for adjustments made to the financial records when the accounts are drawn up). Some of the examples in the report are extreme, as I shall explain below. Interestingly, the report concludes that the sanctions against the auditor would be imposed even if there had been no fraud.
Those sanctions are woefully inadequate in my view. Grant Thornton has been fined four times in the last four years and each fine has been discounted. This latest is less than the highest paid partner’s pay. That doesn’t seem a great deterrent.