The accounting watchdog in England, Financial Reporting Council, found that misconduct by Deloitte led to the collapse of Aero, an aircraft parts wholesaler. The misconduct cost Deloitte £4 million! The fine is the highest recorded by the FRC for misconduct of a firm. This definitely is a message to the audit firms to adhere to the highest standards and know that they are being watched.
Aero at one point was a favorite of the London’s junior market. But after the accounting irregularities were discovered the company’s banks pulled their findings leading to the collapse of the company. The accounting issues interestingtly were found when the company was readying to move to the main market of the stock exchange. During the due diligence auditors raised questions about the book value of its stock and the physical quantities it held. Deloitte that had been the company’s auditor had given the company unqualified opinion during the years in question (2006-2008)!
Deloitte’s response was a classic, “Our audit quality processes have evolved significantly since these audits were performed between 2006 and 2008, and we are relentless in our focus to ensure all our audits are of the highest quality.” Does this mean that all audits the company undertook during the period were substandard audits!