The FRC has published the full report of the Independent Disciplinary Tribunal detailing its findings of misconduct by Deloitte and former partners Richard Knights and Nigel Mercer together with sanctions, in relation to the audits of the published financial reporting of Autonomy Corporation plc.
The FRC previously announced the sanctions on 17 September, but now you can read the tribunals damning final report – 268 pages.
We know that Deloitte received a severe reprimand and was fined Ā£15 million for āserious and serial failure to discharge its critical public interest duty to uphold the reliability of the reporting of Autonomyā.
In the view of the disciplinary tribunal these serious and serial failures, and the failures of one of Deloitteās audit engagement partners (Knights) to act with integrity and objectivity ācould seriously undermine confidence in the standards of conduct of members and member firms…and the profession in generalā.
While it admitted misconduct charges Deloitte had argued that the starting point for any fine should be in the region of Ā£7 million.
However, the Executive Counsel ruled the case āinvolves a Big 4 firm guilty of seriously bad incompetence in respect of the audit of a major public company, where the errors were measured in nine figures or more, leading to the risk of widespread lossesā (See paragraph 845).
It went on to say it is in the wider public interest that a severe fine be imposed āin a case as bad as this caseā.
And, it was pointed out that other firms, which had not committed misconduct, would rightly expect to see the fine imposed on one of the worldās largest accountancy firms to be one reflecting its stature, revenues and profitability. The Ā£15 million fine is 3% of Deloitteās operating profits for FY19 and less than 0.5% of its revenues for FY19.
The firm has been ordered to provide a Root and Cause Analysis of āthe reasons for the misconduct, why the firmās processes and controls did not prevent misconduct, and whether the firmās current processes would lead to a different outcomeā.
The report also pointed out Deloitteās relationship with Autonomy was critical to the Cambridge officeās financial success. It was the only FTSE 100 company audited from that office. This meant it was all the more important that Deloitte should be alive to the need to discharge its public interest duty reliability and independently and not yield to actual or apparent client pressure. āRegrettablyā¦it signally failed to do thisā (see paragraph 776).
Two partners also appeared before the tribunal. It said Richard Knightsā loss of objectivity on multiple occasions was more serious than āmereā incompetence. He yielded to client pressure when accepting the hardware cost allocations, despite his reservations. Knight was excluded as a member of the ICAEW for a recommended 5-year period and fined Ā£500,000.
Nigel Mercer was given a severe reprimand and fined Ā£250,000.
Deloitte was also ordered to pay Ā£5 million (plus VAT) in court costs.
To read the full report go to: https://www.frc.org.uk/getattachment/f29f4517-5b81-4e54-a0c9-ef67ee487282/Tribunal-report-Autonomy-06-01-21.pdf
