Grant Thornton has been fined £4m for its role in the collapse of café chain Patisserie Valerie.
The Financial Reporting Council said Grant Thornton had demonstrated a “pattern of serious lapses in professional judgement” during its time as Patisserie Valerie’s auditor, and had missed “red flags”.
Grant Thornton had acted as statutory auditor for the company since 2007 and signed off audits in 2015, 2016 and 2017.
However, in October 2018 the chain announced that its board had been notified of potentially fraudulent accounting irregularities. The company subsequently collapsed, leading to the closure of 70 stores and more than 900 job losses. A black hole, eventually valued at £94m, was discovered and the Serious Fraud Office launched an investigation, leading to the several arrests.
Claudia Mortimore, deputy executive counsel to the FRC, said the regulator had established “numerous breaches” during the last three audits carried out by Grant Thornton, “evidencing a serious lack of competence in conducting the audit work”.
She said: “The audit of Patisseries Holdings’ revenue and cash in particular involved missed red flags, a failure to obtain sufficient evidence and a failure to stand back and question information provided by management.”
As well as the £4m sanction – which has been reduced for early payment and other mitigating factors to £2.34m – audit engagement partner David Newstead has been fined £150,000 for his role and banned from carrying out audits for three years. The amount he will pay has also been reduced for mitigating factors and early payment, to £87,750.
Grant Thornton must now report annually to the FRC for the next three years to show what remedial actions it is taking on audit quality, including a review of the practice’s culture and a root cause analysis.
The FRC said both the firm and Newstead had accepted failures in their audit work relating to revenue, cash, journals and fixed asset additions. These failures meant that each of the 2015, 2016 and 2017 audits “failed in their principal objectives of providing reasonable assurance that the financial statements were free from material misstatement, whether caused by fraud or error”, it added.
A Grant Thornton spokesperson said: “We regret that 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.”
However, they added that the firm would “rigorously defend” a civil claim brought against Grant Thornton by the chain’s liquidators: “We recognised that there were shortcomings in our audit work. However, our work did not cause the failure of the business.”
