FRC fines EY £1.8m over Tech Data audit misconduct
EY has been reprimanded and fined £1.8m, reduced from £2.75m, after admitting misconduct in relation to the audit of the financial statements of Tech Data Ltd (formerly known as Computer 2000 Distribution Ltd), for the financial year ended 31 January 2012, following an investigation by the Financial Reporting Council (FRC)
16 Oct 2017
ICAEW member Julian Gray, EY senior statutory auditor and audit engagement partner, has also been fined £59,000, reduced from £90,000, and reprimanded.
The misconduct related to three audit areas, and included failures to obtain reasonable assurance about whether the financial statements as a whole were free from material misstatement, failures to obtain sufficient appropriate audit evidence and failures to exercise sufficient professional scepticism.
EY and Gray admitted that their conduct fell significantly short of the standards reasonably to be expected of a member and a member firm and that they failed to act in accordance with the ICAEW’s fundamental principle of professional competence.
The sanctions against EY follow on from the FRC’s announcement in August that it had excluded Philip James, Tech Data’s former finance director, for 10 years and imposed a £100,000 fine, after the ACCA member also admitted misconduct in relation to the preparation and approval of the financial statements for the years ended 31 January 2012 and 31 January 2013.
In May 2014, the FRC initially launched an investigation under the accountancy scheme into the preparation and approval of the financial information of Computer 2000 related to the years ended 31 January 2009 to 31 January 2013 inclusive, after its US parent identified ‘an inadequate control environment’ within its primary operating subsidiary in the UK and two other European subsidiaries.
Following an internal inquiry, the company restated its consolidated financial statement and other financial information relating to the 31 January 2009 to 31 January 2013 period, reducing its previously reported net profits by $27m (£20m).
At the time, the errors were said to relate mainly to errors arising from ‘improper vendor accounting, improper use of manual journal entries and improper recognition of foreign currency exchange transaction.’
In August 2014, the scope of the FRC investigation was extended to include the audit by EY.
EY’s fine was originally set at £2.75m but adjusted for mitigating factors and discounted for settlement, and Gray’s fine was similarly reduced from £90,000. EY is to pay £225,000 towards the FRC’s costs.
Report by Pat Sweet