Sanctions against MacIntyre Hudson LLP

The FRC has issued a Final Settlement Decision Notice under the Audit Enforcement Procedure and imposed sanctions against MacIntyre Hudson LLP (MHA), a former partner and a former employee of the firm.

In this blog, we take a quick look at the reasons for the sanctions.

Background

The sanctions imposed relate to the audits of MRG Finance UK PLC for the financial periods ending 31 December 2018 and 31 December 2019.

The issues largely arose as a result of a failure to recognise that MRG Finance PLC was a Public Interest Entity (PIE). Those involved in the engagements had not recognised that although it had not listed its shares, it had listed bonds on the London Stock Exchange debt market and was therefore a PIE.

As a result the audits were accepted (despite the firm’s policy at the time being to decline the audits of PIEs), and there were extensive breaches of the FRC Ethical Standard and the International Standards on Auditing (UK) as a result of not adhering to the specific requirements in relation to PIEs.

The consequences of this resulted in:

• The provision of prohibited non-audit services;
• Lack of required Engagement Quality Control Review (EQCR);
• Missing elements of the Auditor’s Report applicable to PIEs; and
• An assortment of other ISA breaches largely related to PIEs.

The sanctions

The sanctions have been imposed against both the firm, MacIntyre Hudson LLP (MHA), Deborah Weston (a former partner who was the audit engagement partner for the 2018 audit) and Geeta Morgan (a former director who acted as audit engagement partner for the 2019 audit).

The sanctions for each included a severe reprimand, a declaration that the audit reports signed did not satisfy relevant requirements and financial sanctions. The financial sanctions were £200,000 for the firm, £30,000 for Weston and £25,00 for Morgan, discounted for admissions and early disposals.

The lessons

Whilst a little dated now, the case highlights the importance of conducting robust checks at the acceptance and continuance stage of audit engagements, including the need to obtain a clear understanding of the characteristics of the audited entity.

It’s particularly important that these robust checks are conducted not just for new clients, but at the continuance stage for existing clients as well to ensure the auditor is fully aware of the characteristics of the audited entity.

What might be seen as a small oversight can have significant implications for the acceptance and conduct of the audit, and therefore it is critical that sufficiently experienced and knowledgeable members of staff are directly involved in the acceptance and continuance process.

How can Mercia help?

Mercia’s range of audit methodology products include robust acceptance and continuance procedures. We also offer a range of other support services including file reviews (whether hot or cold) and answering your technical queries. Our extensive range of training courses may also be of benefit.