By Huw Jones
LONDON, Dec 19 (Reuters) - 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 George said.
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 savers.
“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.