Record fine for Deloitte
Accountant must pay £21m after botched Autonomy audit
DELOITTE has been ordered to pay a record £21m for failings in its audits of a scandal-hit British software group.
The disgraced Big Four accountant, along with partners Richard Knights and Nigel Mercer, was blasted by a tribunal for ‘serious and serial’ misconduct that allowed Autonomy to manipulate its balance sheet.
Auditors were accused of being too cosy with the company’s bosses, helping them to ‘disguise’ £118m of loss-making sales as marketing costs.
Autonomy was later sold to US firm Hewlett Packard for £9bn – but HP wrote off most of its value afterwards and alleges a huge fraud at the company.
In a ruling yesterday, the Financial Reporting Council (FRC), the industry regulator, said Deloitte should not have given Autonomy’s books a clean bill of health between January 2009 and June 2011 and that it failed to hold the company to account.
The firm has been fined a record £15m – dwarfing PwC’s £10m penalty for the BHS scandal – and must also pay another £5.6m in legal costs. Deloitte had previously dismissed the FRC’s claims as ‘wholly without merit’.
But the tribunal’s independent panel ‘severely reprimanded’ the accountancy firm and banned Knights from the profession for five years, handing him a £500,000 fine. Mercer was also reprimanded and ordered to pay £250,000.
The panel added: ‘The findings of loss of objectivity and lack of integrity against Knights and Deloitte are particularly serious and unusual.’
Autonomy’s accounting scandal is currently at the centre of criminal fraud proceedings in the US, where prosecutors have charged former boss Mike Lynch, as well as a multibillion-pound High Court trial in the UK. Lynch denies any wrongdoing.
The fine represents the latest blow to the audit industry after high-profile corporate collapses sparked calls for urgent reforms. However, because the regulator’s case began before rule changes in 2016, the money will be distributed to trade bodies that represent the sector.
A Deloitte spokesman said: ‘We regret that the tribunal has ruled that aspects of our audit work on Autonomy between 2009 and 2011 fell below professional standards required. Our audit practices and processes have evolved significantly since this work was performed over a decade ago and we continue to transform our audit by investing in firm-wide controls, technology and processes.’
A spokesman for Knights and Mercer said the pair ‘disagree’ with the tribunal’s verdict and claimed they acted ‘professionally, diligently and in good faith’.