By Huw Jones
LONDON Dec 19 Britain's accounting watchdog has
fined EY 750,000 pounds ($1.2 million) for failing to meet
required standards in its auditing of Christmas savings club
Farepak Food and Gifts, which ceased trading in 2006 owing money
to over 100,000 customers.
The Financial Reporting Council (FRC) also formally
reprimanded EY and ordered it to pay 425,000 pounds in costs.
Farepak stopped trading in October 2006 owing 37 million
pounds to 120,000 customers that had put money into the club as
a way of spreading the cost of Christmas over many months.
Alan Flitcroft, who carried out the audit for EY, was fined
50,000 pounds and also reprimanded.
The FRC said EY and Flitcroft admitted in a settlement with
the watchdog on Dec. 12 that their conduct fell below the
standards reasonably to be expected.
"The result in this case underlines the FRC's commitment to
promote public confidence and ensure the accountancy profession
has proper regard for the technical and professional standards
expected of members," FRC executive director of conduct Paul
EY said the settlement reached with the FRC did not allege
any "causative link" between EY and Flitcroft's conduct and
Farepak's entry into administration and losses suffered by the
"However, EY regrets that aspects of our 2005 audit fell
beneath our usual high standards," the accountancy firm, one of
the world's "Big Four", added.
The watchdog said that in relation to Farepak's 2005
financial statements, EY and Flitcroft failed to perform
adequate procedures to obtain "sufficient appropriate audit
evidence" that all material events had been identified and
reflected in their audit.
"In relation to Farepak's financial year 2005 financial
statements, EY and, in particular, Mr Flitcroft failed to
properly consider Farepak's ability to continue as a going
concern," the FRC said.
EY will pay Flitcroft's fine and costs.
Flitcroft, who could not immediately be reached for comment,
left EY in 2008 to become chief operating officer of Cardiff
Football Club, and later finance director for Ascot Racecourse,
a position he stepped down from in October.