FRC Sanctions BDO and Two Audit Partners Over Supervision Failings

The senior manager, who was sanctioned separately in November 2024, created false audit evidence, caused auditor's reports to be issued without partner approval and inserted partners' electronic signatures without authorisation.

What the FRC found

According to the FRC, BDO failed to respond adequately to internal reports that raised, or should have raised, concerns about the senior manager's honesty and integrity, and its systems and controls for supervision by engagement partners and for audit quality were deficient between 2012 and 2019. The two partners failed to supervise, monitor and oversee 21 and 13 audits respectively, leading to auditor's reports being issued without their authority, in some cases with inadequate or no audit evidence. One partner issued 10 auditor's reports for financial years ending 2015 to 2018 with insufficient audit evidence.

The admitted breaches concern the fundamental principles of professional behaviour and professional competence and due care in the ICAEW Code of Ethics, the quality control standard ISQC 1 and International Standards on Auditing.

The sanctions

• BDO: a fine of £5.85 million after discount, a severe reprimand, reasonable steps to repay audit fees where unauthorised reports were issued, reporting to the FRC every six months for two years and £716,000 towards the FRC's costs.
• First partner: a fine of £189,000 after adjustments, a severe reprimand and a six-year ban on audit work.
• Second partner: a fine of £90,000 after discount, a severe reprimand and a three-year ban on audit work.

Why it matters

The case shows the FRC's focus on firm-wide supervision and on how firms respond to internal warning signs, as well as on individual partners. The FRC sanctions are a reminder for audit firms to test whether engagement partners can realistically oversee their portfolios, and whether controls over electronic signatures and report issuance would detect unauthorised activity.

Sources

• Financial Reporting Council: FRC imposes sanctions against BDO LLP and two Audit Engagement Partners
• Financial Reporting Council: Sanctions against former BDO senior manager, November 2024