The accountancy regulator FRC has issued financial sanctions against MHA, a former partner and a former employee in relation to the audits of MRG Finance UK.
MHA, formally known as MacIntyre Hudson until its rebrand in 2019, is the independent UK arm of the global consulting firm of Baker Tilly International.
The Financial Reporting Council (FRC) has imposed sanctions against MHA, Deborah Weston, a former partner and Geeta Morgan, a former employee, over audit of MRG Finance UK for the financial statements for the period ending 31 December 2018 and the for period ending December 31 2019.
MRG Finance UK Plc was set up in 2018 in order to issue bonds to raise finance for its parent company, a business focused on natural resources with interests in agribusiness, logistics and technology.
The regulator opened an investigation into the conduct of audits for this company back in January 2022.
It was revealed today that MHA and Weston (in relation to the 2018 audit) and MHA and Morgan (in relation to the 2019 audit) “have admitted that there were numerous breaches of relevant requirements in the audit work completed.”
The regulator stated that “the primary breach in each audit year was the failure during the audit acceptance and continuance processes to ultimately identify that the company was a public interest entity because although it had not listed its shares, it had listed the bonds on the London Stock Exchange debt market.”
It added that “the failure to gain an adequate understanding of the company, and the regulatory framework applicable to it, led directly to further breaches of relevant requirements”.
The regulator stated that the firm and the two individuals all co-operated with the investigation and admitted the breaches.
MHA has been issued with a financial sanction of £200,000, discounted for mitigation, admissions and early disposal to £120,250. In addition, an order requiring the firm to take specified actions to prevent the re-occurrence of the contravention.
While Weston has been hit a financial sanction of £30,000, discounted to £19,500 and Morgan was issued with a sanction of 25,000, discounted to £18,750.
The firm and the two individuals were also ordered to pay FRC’s costs of the investigation.
“This case highlights the importance of auditors conducting robust checks at the acceptance and continuance stage of any audit engagement. The auditors did not obtain a clear understanding of the audited entity’s characteristics and failed to properly consider these issues afresh when continuing that engagement.”
Claudia Mortimore, deputy executive counsel for FRC said:
“The conclusions reached at these stages are crucial in determining whether a firm is able to perform an audit and the manner in which the audit should be conducted. To support high quality audit, it is vital these stages are completed in a robust and detailed manner”, Claudia Mortimore, deputy executive counsel for FRC said.
Commenting on the news, a spokesperson for MHA said: “MHA acknowledges the shortcomings in the process for those periods and has significantly strengthened its internal control procedures several years ago to incorporate any lessons learnt.”
“MHA has fully co-operated throughout with the FRC enquiry and is committed as always to the highest levels of audit quality including with MRG Finance UK plc which remains an audit client,” they added.