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A Sydney auditor and an audit firm have now been fined a combined $50,000 after pleading guilty to breaching auditing standards while working on collapsed financial services company Halifax Investment Services.
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Halifax auditors fined $50k over audit failures
19 August 2021
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The conviction of Robert James Evett and EC Audit Pty Ltd — formerly Bentleys NSW Audit Pty Ltd — and the sentence to pay a fine of $10,000 and $40,000, respectively, marks the first time that criminal charges have been brought against auditors.
Both Mr Evett and EC Audit had earlier entered guilty pleas to three charges brought against them by ASIC, relating to the profit and loss statements and balance sheets of Halifax for three consecutive financial years ended 30 June 2016, 30 June 2017 and 30 June 2018.
The corporate regulator contended that Mr Evett, as lead auditor, had breached auditing standards by failing to take responsibility for the overall conduct of the audits and failed to ensure that staff with appropriate skills were conducting the audits.
ASIC also believed that EC Audit failed to understand Halifax’s business and failed to design appropriate tests to identify material misstatements in the accounts.
“Had the audits of the financial statements been conducted in accordance with auditing standards, the material misstatements would have been detected and Halifax would have been required to cease trading until sufficient capital was raised for it to meet its financial services licence (AFSL) capital requirements,” said the court.
“The effect of misstatements was that for each year the financial statements did not disclose that Halifax was not meeting its AFSL requirements, Halifax continued to trade while being prima facie insolvent.”
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The charges brought against Mr Evett and EC Audit could have resulted in a maximum combined fine of $170,500.
ASIC commissioner Cathie Armour said the first-of-its-kind criminal sentencing would act as a deterrent to auditors.
“Auditors are important gatekeepers to the market and play a key role in ensuring financial reports are free from misstatements,” said Ms Armour.
“In taking this action against EC Audit, ASIC is sending a message to auditors to maintain a strong culture focused on audit quality and that any serious failure to comply with auditing standards will be prosecuted.”
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