The Financial Reporting Council has handed down sanctions against Deloitte and former partners Richard Knights and Nigel Mercer over the audit of Autonomy Corporation plc between January 2009 and June 2011.
Following a seven-week hearing during October and November last year, the sanctions have finally been determined!
Deloitte has been fined £15 million, severely reprimanded and has agreed to provide a Root Cause Analysis of the reasons for the misconduct, why the firm’s processes and controls did not prevent the misconduct and whether the firm’s current processes would lead to a different outcome.
Richard Knights has been excluded from membership of the ICAEW for five years and fined £500,000. Nigel Mercer has been fined £250,000 and received a severe reprimand.
The Tribunal also ordered Deloitte to pay all the costs of the investigation claimed by the FRC’s Executive Counsel, which amount to just over £5 million (inclusive of VAT), together with the costs of the Tribunal.
Deloitte, Knights, and to a lesser extent Mercer, were found culpable of serious and serial failures in discharge of their public interest duty.
The Tribunal made numerous findings of misconduct. It said Knights, and thus Deloitte, failed to act with integrity and objectivity, and also did not act with competence, professional scepticism and due care.
The misconduct arose from Deloitte’s audit and review work during 2009 and 2010 relating to the accounting and disclosure of Autonomy’s sales of hardware, and Autonomy’s sales of software licences to value added resellers.
Elizabeth Barret, FRC Executive Counsel, said: “The significant sanctions imposed by the independent Tribunal and announced today reflect the gravity and extent of the failings by Deloitte and two of its former partners in discharging their public interest duty concerning Autonomy’s Audits. The identified failures to act with integrity, objectivity, scepticism and professional competence go to the heart of audit. After lengthy, fully contested proceedings, the Tribunal concluded that the audit work fell significantly short of the standards expected of an audit firm and its partners. The decision serves as an important reminder of the need for auditors to ensure that they conduct audits in compliance with these key audit and ethical requirements and of the consequences when they fail to do so.”
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