Increasing penalties for poor audit work

The UK's audit industry watchdog, the Financial Reporting Council (FRC), has just issued a £2.2m fine to accountancy firm EY over its shoddy audit of the London-listed transport company Stagecoach. This is the highest penalty from an investigation sparked by the FRC’s own checks, rather than acting in response to some reported from a mistake or scandal.

The FRC did not allege that Stagecoach’s accounts had been misstated, which makes the incident less reputationally damaging than it might have been. Still, the fine signals that EY’s audit work was very weak: with flaws in its treatment of pension obligations and provisions, poor documentation, a failure to gather enough audit evidence, and — the FRC emphasized — a lack of sufficient "professional skepticism.”