The Financial Reporting Council (FRC) in the U.K. has imposed sanctions against BDO and partner David Roberts following the firm’s audit of AmTrust Europe Limited’s financial statements in 2014 and 2015.
AmTrust Europe Limited is an insurance company with multiple lines of business across Europe, Asia-Pacific and Canada.
The FRC determined that BDO failed to document relevant audit work in the FY2014 audit. In the FY2015 audit, there were three breaches – the use of independent actuaries as auditor’s experts, the testing of management’s accounting estimate and the data on which it was based, and the evaluation of the method of measurement used by management.
“The failings in this case related to an area of high audit risk, namely the consideration of an insurance company’s approach to its provision for claims,” Jamie Symington, the deputy executive counsel to the FRC said in a statement. “The auditors relied on the opinions of independent expert actuaries without taking sufficient steps to gain an understanding of or to evaluate their work.”
The FRC reports the following sanctions:
- A financial sanction of £200,000;
- A reprimand against Roberts;
- A requirement for BDO to implement a training program designed to improve quality and consistency in the firm’s processes for obtaining and evaluating independent actuarial audit evidence and in the documentation of those processes and of auditors’ key judgements;
- A requirement that for two years, BDO conduct a quality performance review of the work relating to obtaining and evaluating actuarial audit evidence from independent actuaries as auditor’s experts and shall report the results annually to the FRC.
The FRC says it does not question the fairness or truth of the financial statements for those two years and notes that the breaches were not “intentional, dishonest, deliberate or reckless.”
Further, FRC announced that BDO has already adopted a number of measures designed to address the shortcomings, and BDO and Roberts have a good compliance history and no prior sanctions.