Mazars LLP was sanctioned by the Financial Reporting Council (FRC) for failing to comply with the Regulatory Framework for Auditing during its audit of a Market Traded Company's financial statements. The primary issue was the incorrect classification of convertible loan notes, which led to a material misstatement. This critical error was not identified by Mazars until after the audit was completed, indicating a significant lack of quality control within the firm. Additionally, the FRC raised concerns regarding how bonus payments were addressed in the audit.
The FRC imposed a regulatory penalty of £90,000 on Mazars. This amount was reduced to £72,000 due to the firm's cooperation and admissions during the investigation. The FRC stated that the sanction aims to ensure that Mazars' audit work is "undertaken, supervised and managed effectively." The FRC's Audit Quality Review (AQR) team will continue to monitor Mazars' compliance with these requirements.
This incident follows previous criticism from the FRC, which had singled out Mazars and BDO in its annual enforcement audit quality review for "unacceptable" audits. The FRC noted that Mazars' audit quality had shown some improvement compared to the previous year, with 56% of audits requiring only limited improvements in 2021/22. However, despite these improvements, the FRC has called for urgent action from the firm, particularly in light of this sanction.
Separately, Dutch regulator AFM fined Forvis Mazars Accountants N.V. €446,000 due to widespread exam fraud among its employees between 2020 and 2023. The firm lacked controls to prevent this. Similarly, the Accounting and Financial Reporting Council (AFRC) in Hong Kong fined Forvis Mazars CPA Limited HK$1.4 million for systemic breaches related to the timely archiving of audit files on 413 engagements. These regulatory actions collectively highlight significant quality control and operational issues across different operations of Forvis Mazars globally.
