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UK FRC fines Grant Thornton £2.3Mn over Patisserie Valerie scandal

UK FRC fines Grant Thornton £2.3Mn over Patisserie Valerie scandal
UK FRC fines Grant Thornton £2.3Mn over Patisserie Valerie scandal

Financial Reporting Council (FRC), the independent finance watchdog for the UK and Ireland, has reportedly issued a fine of £2.3 million to Grant Thornton, a US-based accounting and advisory firm over the role it played in an accounting scandal involving leading cafe chain, Patisserie Valerie.

According to credible reports, the FRC accused the firm of a severe lack of competence for its involvement in the aforementioned accounting controversy, which led to the eventual demise of the British cafe chain.

Grant Thornton, who was Patisserie Holdings' auditor from 2007 until its bankruptcy in early 2019, admitted that there were errors in the audit work, including claims about the company’s cash, fixed assets, and revenue.

Patisserie Valerie was operating with 200 cafes and around 3,000 employees when it was embroiled in the said scandal, forcing the firm to call administrators in January of 2019. After the company’s accounts were inflated by £94 million, almost 70 of the group's 200 outlets were closed immediately, resulting in the 900 jobs losses.

The Financial Reporting Council (FRC) stated that its inquiry found a severe lack of competence in executing audit work during 2015 and 2017 and that Grant Thornton failed to see red flags. The FRC also passed sanctioned against David Newstead, Grant Thornton partner, for his involvement in the scandal.

Newstead will now pay a fine of about £88,000 and will be barred from conducting audits or signing audit reports for the next three years.

After Grant Thornton and Newstead confessed to the violations, the regulator lowered their penalties; otherwise they would have faced fines of £4 million and £150,000, respectively.

The FRC has ordered Grant Thornton to reevaluate its audit quality and culture in relation to questioning declared accounts. It will also be subjected to increased scrutiny in terms of bank and cash audit work and will be required to provide three-yearly reports on the effect of those ongoing assessments.

In addition, Grant Thornton has also been forced to reimburse the FRC's investigative fees. A Grant Thornton representative stated that the firm cooperated completely with the FRC and accepted the conclusions of the inquiry.

Source credit: https://www.theguardian.com/business/2021/sep/27/patisserie-valerie-auditors-fined-frc-grant-thornton

 

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