The Financial Reporting Council has fined BDO £1.3m and issued a severe reprimand over failures of its statutory audit of NMCN plc for the financial year ended 31 December 2019.
Audit engagement partner Geraint Jones was fined £48,875 and was given a severe reprimand.
BDO has also paid the agreed cost of Executive Counsel’s investigation.
NMCN (which entered into administration in October 2021) operated as a construction and consultancy services group delivering major building and national infrastructure projects across the UK. Its shares were listed on the London Stock Exchange. Its core business operated through long‑term contracts. The circumstances of the audit, namely the first COVID-19 lockdown and the original audit engagement partner having unexpectedly to withdraw from the audit, were challenging. BDO and the replacement audit engagement partner, Jones, admitted breaches of relevant requirements in multiple areas of the 2019 audit of NMCN.
The breaches occurred predominantly within the audit work on NMCN’s long‑term contracts. The respondents had identified significant risks of material misstatement in respect of revenue and profit recognition on long‑term contracts and the recoverability of contract assets, trade receivables and retentions. The audit work performed in response to these significant risks was deficient and the respondents failed to obtain reasonable assurance concerning whether the financial statements as a whole were free from material misstatement.
There were further breaches in the audit of going concern, including a failure to meet the requirement to plan and perform the audit with professional skepticism. Consequently, BDO and Jones did not obtain sufficient appropriate audit evidence to be able to conclude on whether NMCN’s going concern status was subject to material uncertainty.
FRC said that while the breaches were serious and significant, it is not suggested that the breaches were intentional, dishonest, deliberate or reckless. Nor is it asserted that the financial statements were in fact misstated. Furthermore, both BDO and Jones gave an exceptional level of cooperation with the investigation, which Executive Counsel took into account in determining the sanctions.
