Deloitte fined £1.45m by watchdog over Mitie Group audit
The Financial Reporting Council also handed a £40,056 fine to John Charlton, who worked on the audit for the corporate finance firm.
The accounting watchdog has fined Deloitte £1.45 million after failures in its audit of outsourcing giant Mitie Group.
The Financial Reporting Council (FRC) also handed a £40,056 fine to John Charlton, who worked on the audit for the corporate finance firm.
Both Deloitte and Mr Charlton admitted to breaches related to their “audit work of the company’s impairment testing of goodwill”, the FRC said.
It added that breaches of regulations by the auditors meant that Mitie’s accounts for 2016 contained “a material uncorrected misstatement” regarding the headroom of its healthcare division.
The accounts attributed £465.5 million to the value of goodwill – intangible company assets – with more than £107 million of this related to its healthcare operation.
Claudia Mortimore, deputy executive counsel at the FRC, said: “It is vital that audit work in relation to the carrying amount of goodwill is conducted properly and the disclosures are sufficient to enable investors to understand the position and have confidence in the numbers included in the financial statements.
“Deloitte has accepted that there were deficiencies in its audit work of goodwill in Mitie’s full-year 2016 financial statements.
“Since 2017, Deloitte has introduced a number of initiatives seeking to improve the quality of audit work related to goodwill and impairment.
“In addition to the financial sanction, Deloitte is required to report to the FRC on the efficacy of the initiative and, importantly, to provide empirical evidence as to whether they are leading to improvements in quality.”
The FRC said its initial fine of £2 million for Deloitte was reduced after early admissions by the company.
It comes as Deloitte faces further scrutiny over the quality of its accounting, with the FRC confirming last week that it is investigating the firm over its audits of rail and bus operator Go-Ahead.
A Deloitte spokeswoman said: “We regret that a specific part of our full-year 2016 audit of Mitie Group plc, related to the impairment testing of goodwill in Mitie’s healthcare division, fell short of the standards expected.
“Both the audit partner and the firm have learnt from this process and have taken significant steps to address this issue.
“We remain committed to audit quality and its continuous improvement.”
