Accountancy firm Grant Thornton has been fined £2.3m over the audit of cake chain Patisserie Valerie.
The fine, which was reduced from £4m, was for audits carried out for the financial years ended 30 September 2015, 2016 and 2017, the Financial Reporting Council (FRC) said.
Claudia Mortimore, deputy executive counsel to the FRC, said Grant Thornton’s audit of Patisserie Holdings – the group of companies which predominantly traded under the brand Patisserie Valerie – had missed “red flags” and demonstrated a “failure to obtain sufficient audit evidence and a failure to stand back and question information provided by management”.
“This Decision Notice sets out numerous breaches of Relevant Requirements across three separate audit years, evidencing a serious lack of competence in conducting the audit work,” Mortimore said.
Its audit engagement partner David Newstead was also fined. Newstead was hit with an £87,750 fine (reduced from £150,000 for aggravating and mitigating factors and discounted for admissions and early disposal – the same reasons Grant Thornton’s fine was lowered).
In October 2018, Patisserie Holdings announced that its board had been notified of potentially fraudulent accounting irregularities and the company subsequently entered administration, leading to the closure of 70 stores and more than 900 job losses.
Grant Thornton’s response
A spokesperson for Grant Thornton UK LLP said: “We have co-operated fully with the FRC and acknowledge the investigation’s findings relating to our audits in 2015-2017. We regret the quality of our work fell short of what was expected of us in this instance.”
“Since the period in question, we have invested significantly in our audit practice to better ensure consistent quality and have started to see the material outcome of this investment –evidenced most recently in our latest AQR scores.”
The business must report annually to the FRC for three years on how its audits are improving.
The Grant Thornton spokesperson added that the business would “rigorously defend” the civil claim brought by Patisserie Valerie’s liquidators which it claimed “ignores the board’s and management’s own failings in detecting the sustained and collusive fraud which took place”.
“We recognise that there were shortcomings in our audit work; however, our work did not cause the failure of the business,” the spokesperson said.