Patisserie Valerie auditor slapped with £2.34m fine

The auditors of collapsed cake chain Patisserie Valerie missed red flags, failed to question management properly and showed a serious lack of competence, according to regulators.

The Financial Reporting Council (FRC) made its findings against accounting giant Grant Thornton and auditor David Newstead, handing them fines of £2.34 million and £87,750 respectively.

Investigators looked at three audits in 2015, 2016 and 2017 prior to the chain’s collapse in 2018, with the loss of 900 jobs and a police investigation into fraud allegations.

The FRC said a fine against Grant Thornton would have been £4 million, but was adjusted for “exceptional levels” of co-operation.

But the company must now report annually to the regulator for three years to show what efforts it is making to improve its audits and change its culture.

A “severe reprimand” was also issued and the company has agreed to pay the FRC’s costs for the investigation.

Mr Newstead, who carried out the work for Grant Thornton, was given a three-year ban from carrying out audits or signing off audit reports.

Both accepted there had been failures in areas of their audit work.

The FRC said: “The breaches reveal a pattern of serious lapses in professional judgment, 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: “This decision notice sets out numerous breaches of relevant requirements across three separate audit years, evidencing a serious lack of competence in conducting the audit work.

“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.”

The company collapsed and was revealed to have been overstating its accounts for years.

After going into administration, the chain was found to have overstated its cash position by £30m and had failed to disclose overdrafts of nearly £10m.

Heavy cost-cutting had seen the company remove key ingredients, including butter, replacing it with cheaper margarine in its products.

It led to several arrests for fraud and an investigation by the Serious Fraud Office.

A spokesperson for Grant Thornton said the company has invested significantly in audit practice since the scandal.

He added: “We have cooperated fully with the FRC and acknowledge the investigation’s findings relating to our audits in 2015-2017.”

PAYING PENALTY: Auditors of the cake chain were fined for ‘serious lapses in professional judgment and scepticism’.