Audit Reform Stall: Forvis Mazars Fined £577k Over “Pervasive” Retailer Audit Failures

Even as the momentum for sweeping statutory audit reform hits a lull, regulatory bodies continue to hand down heavy penalties. In the latest high-profile disciplinary action, the UK Financial Reporting Council (FRC) has hit Forvis Mazars with a £577,125 fine (discounted from £950,000 due to early admission and exceptional cooperation) over serious failings in its FY21 audit of Studio Retail Group Plc (SRG).

The audit engagement partner, David Allen—an industry veteran with over 20 years of experience—was also personally fined £33,412 and ordered to undergo mandatory retraining.

The Fall of Studio Retail Group

Forvis Mazars was appointed as SRG’s auditor in October 2020. At the time, the digital catalogue retailer was listed on the main market of the London Stock Exchange.

However, just eight months after Forvis Mazars signed off on the FY21 audit report, SRG collapsed into administration on February 24, 2022. While the company’s operating assets were quickly sold off in a pre-packaged deal, shareholders lost their entire investments, and lenders and unsecured creditors suffered massive financial losses.

Note: While the FRC highlighted severe audit failures, the regulator noted that these breaches did not directly cause the retail group’s insolvency.

Where the Audit Fell Short

Both Forvis Mazars and Allen admitted to serious breaches of International Standards on Auditing (ISAs). The FRC identified “numerous, serious, and pervasive” failures across three critical financial areas:

• Expected Credit Losses (ECL): Under IFRS 9, companies must rigorously assess and disclose potential credit risks. Despite ECL being a highly complex accounting estimate and a key risk area, the auditors failed to gather sufficient appropriate evidence.
• Going Concern Assumptions: Under IAS 1, financial statements must accurately reflect a business’s ability to continue operating. The FRC found the audit work on SRG’s cashflow forecasts and management models to be deeply flawed, pointing to a severe lack of professional skepticism.
• Financial Services Income: Inadequate verification procedures were applied to the retailer’s in-house financial services revenue.

Prior to this audit, the FRC’s 2019-2020 quality inspection had explicitly warned Forvis Mazars that it needed to improve its handling of ECL judgements—a warning that went unheeded in this case.

Moving Forward: The Firm’s Response

Greg Simpson, Head of Audit at Forvis Mazars UK, expressed regret over the findings:

“Quality is central to Forvis Mazars and we regret that our work fell short of the required standards in this instance. The findings relate to a 2021 audit and there is no assertion that the financial statements were misstated.”

Simpson pointed out that the firm has made major, sustained investments in audit quality and resources since 2021, pointing to positive scores in the FRC’s recent Annual Review of Audit Quality.

The Broader Picture: A Slow Walk on Audit Reform

This sanction is another reminder of the systemic issues plaguing the auditing sector. With other major firms like BDO and King & King also facing recent FRC penalties, public trust in corporate oversight remains fragile.

Despite industry calls for modernization, the UK government shelved proposed legislative plans to overhaul audit reform earlier this year. While minor administrative updates have occurred, major structural reform remains stalled—leaving self-regulation and heavy FRC fines to do the heavy lifting for now.

Source: Adapted from original coverage by Matthew Ord on AccountingWEB.