The Financial Reporting Council has issued a severe reprimand to both UHY Hacker Young and Julie Zhuge Wilson, over the statutory audit of the consolidated financial statements of Inch Kenneth Kajang Rubber plc (IKKR), for the financial year ended 31 December 2016.
On top of the severe reprimand UHY and Wilson have agreed to pay the Executive Counsel’s costs of the investigation. That means UHY will pay £146,751.97 and Wilson £62,893.70.
The IKKR Group is engaged in rubber manufacture, tourism, construction and property development/leasing. Its operations were entirely based in South East Asia, primarily Malaysia. Whilst its registered office was in Scotland, the activities of the parent company were minimal and the operational and financial management of the IKKR Group was also based in Malaysia.
The admitted audit failings included a general failure to prepare sufficient audit documentation, a failure to obtain sufficient appropriate audit evidence. and a lack of professional scepticism.
The breaches of ‘Relevant Requirements’ in this case related to a number of areas of the FY16 Audit, including:
*The acceptance, planning and resourcing of the audit.
*Assessing the capabilities of component auditors, instructing the component auditors, and involvement in their assessment as to risk.
*The review of the work of a component auditor.
*The engagement with the audit Engagement Quality Review partner (EQCR).
*The signing of the audit report.
There were also specific breaches in relation to audit work on an industrial land transaction and on the carrying value of an associate.
However, the FRC ruled that the breaches of Relevant Requirements were not intentional, dishonest, deliberate or reckless.
The sanctions determined by Executive Counsel reflect, among other things, the fact that UHY had already undertaken significant remedial action, following the FRC’s Audit Quality Review team’s findings on the FY16 Audit that led to the referral to Enforcement. Executive Counsel has also taken into account the size and financial resources of UHY. In addition, UHY and Wilson have a good compliance history and disciplinary record with no prior sanctions under the AEP or Accountancy Scheme.
Claudia Mortimore, Deputy Executive Counsel to the FRC, said: “The Relevant Requirements breached in this case related to numerous fundamental areas of the audit and were designed to ensure the quality and effectiveness of the audit. The proportionate sanctions are geared towards preventing recurrence of the breaches and improving audit quality.”
