FRC sanctions Forvis Mazars and audit partner for SRG audit failings

The UK Financial Reporting Council (FRC) has sanctioned Forvis Mazars and audit engagement partner David Allen over audit failings linked to Studio Retail Group (SRG), a former digital catalogue retailer.

The case relates to the statutory audit of SRG for the financial year ended March 2021.

In a statement on 2 July, the FRC said Forvis Mazars and David Allen admitted “serious breaches” of the International Standards on Auditing in three areas: expected credit losses (ECL), going concern and financial services income.

Forvis Mazars received a financial sanction of £577,125, while Allen was fined £33,412. The regulator also issued a “severe reprimand” to the company and the audit partner.

London-listed SRG entered administration in February 2022, around eight months after Forvis Mazars signed its audit report.

The FRC said that on the same day, SRG’s administrators sold the trading company and certain other assets in a pre-packaged sale. SRG’s creditors, including lending banks and unsecured creditors, suffered a “substantial loss” in the administration, while SRG’s shareholders lost their entire investment, the regulator added.

The FRC said two of the areas where it identified failings were assessed as significant risks and key audit matters.

On ECL, the regulator described the provision as a complex accounting estimate of future credit losses that requires critical judgements. The FRC said there were numerous failings in audit work on SRG’s ECL provision, including failures to obtain “sufficient appropriate audit evidence”.

The audit work on management’s use of the going concern basis of accounting was flawed, it noted.

FRC acting deputy executive counsel Justine Davidge said: “This decision highlights the rigour and expertise required when auditing Expected Credit Loss provisions. Serious breaches and failings were found in the audit work of this area.”

The FRC added that, despite the breaches of relevant requirements, the executive counsel to the FRC does not suggest the breaches caused SRG’s insolvent administration.

“FRC sanctions Forvis Mazars and audit partner for SRG audit failings” was originally created and published by International Accounting Bulletin, a GlobalData owned brand.