Grant Thornton has been fined £4m and severely reprimanded by the audit watchdog for failing to spot allegedly fraudulent accounting irregularities at Patisserie Valerie that sent the company into administration in January 2019.
The Financial Reporting Council said it was sanctioning the mid-tier accounting firm and its audit partner David Newstead in relation to their audits of Patisserie Valerie’s parent company Patisserie Holdings in 2015, 2016 and 2017.
The FRC said it was fining Grant Thornton £4m, which it reduced to £2.34m for mitigating factors, admissions and early disposal.
The regulator also fined Newstead £150,000, reduced to £87,750.
The firm signed clean audit opinions for 2015-2017, but in October 2018 the company announced it had discovered a black hole in its accounts. Patisserie Valerie entered administration in January 2019 leading to the closure of 70 stores and more than 900 job losses.
A spokesperson for Grant Thornton 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.”
Newstead resigned from Grant Thornton’s partnership in March 2020, according to Companies House filings. He remains an audit director with the firm. Newstead declined to comment.
The watchdog also ordered Grant Thornton to report its remedial actions for audit quality to the FRC for three years, a declaration that its audits for the three years did not satisfy the relevant requirements and a published statement in the form of a severe reprimand.
The firm has also been ordered to pay the costs of the investigation.
Newstead has been banned from carrying out statutory audits and banned from signing audit reports for three years.
The FRC said that there were serious breaches across the three years that revealed a “pattern of serious lapses in professional judgement, failures to exercise professional scepticism, failures to obtain sufficient appropriate audit evidence and/or to prepare sufficient audit documentation”.
Claudia Mortimore, deputy executive counsel to the FRC, said: “The audit of Patisserie Holdings Plc’s revenue and cash, in particular, involved missed red flags, a failure to obtain sufficient audit evidence and a failure to stand back and question information provided by management.”
Grant Thornton is also facing a separate £200m claim from the administrators of Patisserie Holdings over its negligent audits.
A spokesperson for Grant Thornton said: “We will continue to rigorously defend the civil claim brought by PV’s liquidators, which 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.”
Patisserie Valerie was bought out of administration by its management team and Irish private equity fund Causeway Capital in February 2019.
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