FRC: Deloitte LLP and John Clennett fined for Misconduct in relation to Aero Inventory Plc
11 Nov 2016 01:39 PM
The Financial Reporting Council (FRC) yesterday announced the outcome of the independent Tribunal's disciplinary hearing concerning the conduct of Deloitte LLP and the Deloitte partner, Mr John Clennett in relation to the audit of financial statements of the AIM listed company Aero Inventory Plc and its subsidiary Aero Inventory (UK) Limited (together "Aero") for the financial years ended 30 June 2006, 2007 and 2008. Deloitte LLP were the auditors and Mr Clennett the Audit Engagement Partner for Aero.
The three allegations brought by the Executive Counsel to the FRC concerned:
- The appropriateness of the accounting and disclosure in Aero's 2006 financial statements of the Garuda Transaction.
- The costs of sales and stock valuations in the 2006, 2007 and 2008 audits.
- Stock existence in the 2007 and 2008 audits.
The Tribunal found all three allegations proved and that the conduct of Deloitte and Mr Clennett fell significantly short of the standards reasonably to be expected of, respectively, a Member Firm and a Member of the Institute of Chartered Accountants in England and Wales (ICAEW).
The Tribunal imposed the following sanctions: a Severe Reprimand and a Fine of £4,000,000 for Deloitte; and a Severe Reprimand and a Fine of £150,000 for Mr Clennett. The Tribunal also ordered that Deloitte pay all the costs of the proceedings brought against it and Mr Clennett and ordered an interim payment on account of costs of £2,275,000.
Gareth Rees QC, Executive Counsel to the FRC, said:
“This fine of £4 million is the highest recorded by the FRC for misconduct on a Firm and was imposed on Deloitte by the Tribunal following a five week hearing. It is a clear indication of the importance of the highest standards being maintained in all audits and the seriousness of the failure to perform an adequate audit of these financial statements which led to misleading information about the profits and turnover of the company being made to the market.”
The FRC has also published the settlement agreement entered into by the Executive Counsel to the FRC and Mr Hugh Bevan, former Finance Director of Aero Inventory plc, and a member of the ICAEW. The settlement was announced on 2 July 2015.
Notes to editors:
- The FRC is responsible for promoting high quality corporate governance and reporting to foster investment. We are the UK competent authority for audit and set the UK Corporate Governance and Stewardship Codes as well as UK standards for accounting, auditing and actuarial work. We represent UK interests in international standard-setting. We also monitor and take action to promote the quality of corporate reporting and auditing. We operate independent enforcement arrangements for accountants and actuaries; and oversee the regulatory activities of the accountancy and actuarial professional bodies.
- In relation to disciplinary matters, the FRC is the independent, investigative and disciplinary body for accountants and actuaries in the UK dealing with cases which raise important issues affecting the public interest. In brief, the stages of the disciplinary process are:
- Decision to investigate
- Decision whether to bring disciplinary proceedings against a member firm or member and, if so decided, referral to Disciplinary Tribunal
- Tribunal hearing
- Determination and imposition of sanction and/or costs orders
The FRC can start a disciplinary investigation in one of two ways: (i) the professional bodies can refer cases to the FRC; and (ii) the FRC may decide of its own accord to investigate a matter. The Conduct Committee will consider each case identified or referred to it and decide whether or not the criteria for an investigation are met.
Investigations are conducted by Executive Counsel and the Enforcement Division. If disciplinary proceedings are commenced, Executive Counsel delivers a Formal Complaint to the Conduct Committee. The Conduct Committee then instructs the Convener to appoint a Disciplinary Tribunal.
- Aero Inventory Plc went into administration in 2009.
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