Audit and Accounting: Auditors struck off and fined

Huntley Farrar was a small firm of accountants and auditors in the UK. It provided audit services to The Southern Cross Group Limited. Like so many auditors, it signed off saying that the audit had been conducted in accordance with Accounting Standards when this was not the case.

Unlike so many firms, Huntley Farrar was brought up before its regulators. The firm has closed, the "Responsible individual" of the firm, Mr Robert Michael Watson has been severely reprimanded and fined. Mr Barry Leonard Early has been struck off and fined.

A notice issued by the UK's Insolvency Service details the penalties which arose after a reference to the Investigation Committee of the Institute of Chartered Accountants in England and Wales by the government's Companies Investigation Branch into the affairs of Southern Cross Group which went into liquidation.

The Insolvency Service is the regulator for the insolvency profession, which is a discrete profession although most members are also lawyers or accountants.

The Insolvency Service said:

On 23 September 2009 the Disciplinary Committee issued a severe reprimand and imposed a fine of £9,000 on the former regulated firm of Huntley Farrar in that the firm issued a qualified audit report in respect of the balance sheet and associated notes of Southern Cross Group Limited to the effect that the audit had been conducted in accordance with Auditing Standards when this was not the case, as the firm failed to obtain sufficient appropriate audit evidence to draw reasonable conclusions on which to base the audit opinion in respect of Tangible Assets, Investments, Cash, and Share Capital. Mr. Watson the Responsible Individual of his firm, was also severely reprimanded and fined £2,000 in relation to the same charge. The firm and Mr. Watson were each also ordered to pay costs of £4,391. Mr. Early was struck off and ordered to pay a fine of £3,000 and costs of £4,391 in that he issued twenty one accountant’s references on behalf of Huntley Farrar in relation to the financial standing of SCG when he knew that his firm did not have sufficient knowledge or information about SCG to enable it to make such assertions.Huntley Farrar, Mr Watson and Mr Early have 28 days from the date of the hearing to lodge an appeal against the findings of the Investigation Committee.

The fines appear small for what appears to be little other than fraudulent or reckless behaviour by an auditor who, one must remember, is supposed to serve society not the companies he audits. But the more galling point of the story is that the regulators - both government and self-regulatory - have taken this action against a small firm when the failures of large firms are legion.