The UK accountancy watchdog has fined Deloitte just under £1m over failures of its audit of SIG plc, for the financial years ended 2015 and 2016. The firm also received a severe reprimand and been ordered to take specific action to mitigate the effect or prevent a reoccurrence of the failures.

Audit engagement partner, Simon Manning was fined £36,250, and also received a severe reprimand.

Deloitte and Manning admitted two breaches of Relevant Requirements in relation to the audit of supplier rebates and cash.

In respect of supplier rebates (financial incentives paid to SIG by its suppliers, to encourage the company to purchase the suppliers’ goods), Deloitte and Manning failed to obtain and document sufficient appropriate audit evidence in respect of the testing of rebate terms as set out in SIG plc’s rebate workbooks, and the testing of rebate debtor balances. They also failed to exercise sufficient professional scepticism by failing to investigate indications that rebate debtor balances may have been overstated.

In respect of cash, Deloitte and Manning failed to obtain sufficient appropriate audit evidence in respect of cheque payments made around the year-end, and failed to exercise sufficient professional scepticism by failing to investigate indications that cheque payments claimed to have been made post-year-end should properly have been regarded as pre-year-end payments.

Deloitte and Manning co-operated with the FRC’s investigation and admitted the breaches. The extent and timing of their admissions is reflected in the 27.5% discount which has been applied to the final financial penalties.

Jamie Symington, Deputy Executive Counsel, said: “These breaches concerned two discrete areas of the audit of a particular subsidiary of SIG plc. They involved contraventions of requirements which are fundamental to the role of the independent auditor, and were associated with material misstatements in SIG plc’s accounts which had to be corrected. The breaches in respect of supplier rebates were made all the more serious by the fact that the FRC had highlighted these complex supplier arrangements as requiring particular attention from auditors.”

A copy of the Final Settlement Decision Notice can be found here.