Deloitte faces scrutiny over audit of collapsed aerospace group
Big Four accountant Deloitte to face disciplinary panel over audits of collapsed aircraft parts supplier Aero Inventory
Collapsed Aim business Aero Inventory supplied parts for aircraft engines
By Alan Tovey, Industry Editor
5:13PM GMT 12 Jan 2015
Accountancy firm Deloitte is to appear before the industry regulator over its role in events leading up to the collapse of Aero Inventory, an aircraft parts supplier.
The firm, one of the so-called ‘Big Four’ firms, audited the former Aim-listed darling’s books for the three years before the company went into administration in 2009, after lenders refused to support the business because of concerns about the valuation of its inventory.The company’s backers withdrew their support after Deloitte refused to sign off the accounts in 2009.
The Financial Reporting Council (FRC) said that following an investigation it has lodged a formal complaint against Deloitte and John Clennett, audit engagement partner at the firm, relating to conduct over audits of Aero Inventory for 2006, 2007 and 2008 – the years in which Deloitte signed off the finances.
The regulator also issued a formal complaint against Hugh Bevan, the former finance director of Aero Inventory.
The complaint alleges that the conduct of all three “fell significantly short” of principles expected by accountancy’s professional bodies, requiring them to “perform their professional work with due skill, care and diligence and to act with professional competence and due care”.
All three parties will now be called to defend their actions before a disciplinary panel, an event expected to take place before the end of the month.
If they are found not to have met the required standard, sanctions include potentially unlimited costs and fines, as well as being banned from working in the profession.
In a statement Deloitte said: “We note today’s announcement from the FRC and will continue to co-operate fully with this process. We take this matter very seriously but will not comment further prior to the tribunal hearing.”
Mr Bevan could not be reached for comment.
January 12, 2015 3:04 pm
Deloitte could face fine over Aero Inventory audit
Deloitte, one of the UK’s big four accountancy firms, a Deloitte partner and the former finance director of one of the firm’s audit clients face formal disciplinary hearings that could result in them being fined or banned from the profession.
The Financial Reporting Council, the accountancy watchdog, has made a formal complaint against the trio following a four-year investigation into the preparation and audit of the financial statements of Aero Inventory, an aircraft parts wholesaler that went into administration in 2009.
The FRC argues that the behaviour of Deloitte, John Clennett, a Deloitte audit partner, and Hugh Bevan, Aero Inventory’s former finance director, fell “significantly short” of the ethical and professional standards expected of members of the Institute of Chartered Accountants in England and Wales. The precise terms of the complaint are confidential, said the FRC and Deloitte.
An independent Disciplinary Tribunal will be appointed to hear the case. If it upholds the FRC’s complaint, it can impose fines, costs and bar individuals from the industry.
This is the next stage in a saga that began in late 2009 when accountants from KPMG to were appointed as administrators Aero after the company’s shares were suspended and its lenders withdrew their support. The aircraft wholesaler said in the autumn of 2009 it had discovered “issues” with the accounting treatment of stock and warned as a result it was likely to breach non-financial covenants on its bank debt, standing then at about £300m. It had delayed publishing its accounts after questions emerged over the valuation and physical quantity of stock on the books.
At the time, about 40m aircraft parts, worth $400m, were held in 130 different locations scattered across the globe. Deloitte had refused to sign off the 2009 audit as it could not agree the stock valuations put forward by the management. In November, Mr Bevan resigned as a director. A few days later the administrators were called in. The FRC launched an investigation two years later.
Deloitte said on Monday: “We note today’s announcement from the FRC and will continue to co-operate fully with this process. We take this matter very seriously but will not comment further before the Tribunal hearing.”
Mr Bevan could not be reached for comment.