FRC fines BDO over AmTrust Europe audit

The Financial Reporting Council (FRC) has imposed sanctions against BDO and partner David Roberts, over statutory audit of the financial statements of AmTrust Europe Limited.

AEL is an insurance company with multiple lines of business across Europe, Asia-Pacific and Canada.

The FRC said the breaches of ‘Relevant Requirements’ in this case related to an area of audit work which was “fundamental for the audits”; the approach of AEL’s management to setting its technical provision for outstanding claims.

For the full-year 2014 audit, the FRC said a single breach was determined, concerning a “failure” in documentation of the relevant audit work.

In respect of the FY2015 audit, there were breaches in three areas of audit work on provision for claims: the use of independent actuaries as auditor’s experts, the testing of management’s accounting estimate and the data on which it was based and the evaluation of the method of measurement used by management.

BDO has now been fined £200,000, discounted for admissions and early disposal to £160,000, as well as being issued a reprimand.

Further to this, BDO is now required to implement an “appropriate” training programme designed to improve quality and consistency in the firm’s processes for obtaining and evaluating independent actuarial audit evidence, and in the documentation of those processes and of auditors’ key judgements.

A reprimand has also been imposed against Roberts by the UK watchdog, who will also pay executive counsel’s costs of the investigation.

Jamie Symington, deputy executive counsel to the FRC, said: “The failings in this case related to an area of high audit risk, namely the consideration of an insurance company’s approach to its provision for claims.

“The Auditors relied on the opinions of independent expert actuaries without taking sufficient steps to gain an understanding of or to evaluate their work.”

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