London capital and finance

Yup. The ASX and TSX are the original home of the man with a van and a hole pitching himself as the next Barrick.

Folk have always had an obsession with throwing money at a bloke who can't even wear his trousers properly but claims to be able to dig a hole above something of value.

The real eye opener is when you realise that most of these mining companies are literally two toothless alcoholics living in a caravan and fighting over a broken shovel when not trying to rape a squirrel.

It’s one of the oddities of the regime: the FRC hammers the firms and individual engagement partners. Similar approach taken by the US regulator.

It means that, perversely imho, the audit firms are now obsessed about the risk of regulatory action and indeed, in my experience, far more than the management of the companies being audited (and which are the main perpetrators of crappy and/or fraudulent reporting).

Having said that, the level of disquiet doesn’t seem to be stemming the tide of FRC findings these days.

To be fair, being the Engagement Partner carries a lot of responsibility. That’s why they get paid big bucks.

It is a named individual thing mainly. Every statutory audit under the Companies Act must have a Responsible Individual (also known as the Audit Engagement Partner). Typically these are partners or directors (senior employees) although very rarely these days they could be a senior manager. Large audits will also have a second RI assigned as an Engagement Quality Control Reviewer (usually a more experienced RI).

They sign the audit report as Senior Statutory Auditor. The RI must be a Registered Auditor on the Register of Statutory Auditors.

To become a Registered Auditor, you have to be a qualified member of a Recognised Supervisory Body (ICAS, ICAEW, ACCA or CAI), hold the Audit Qualification (straightforward - only requires two years post-qualification audit experience) and a Practising Certificate (less straightforward - how to show suitable experience etc).

Audit firms and RIs are regulated by their relevant RSB. They carry out sample and targeted inspections of audit files and can bring disciplinary proceedings against the firm and RI. Tier 1 (Big 4, Grant Thornton, Mazars and BDO) and Tier 2/3 firms that audit Public Interest Entities are also subject to regulation by the Financial Reporting Council's Audit Quality Review team, which can also bring disciplinary proceedings (as happened here).

Any company company in scope of US Securities regulations will also have their audit subject to Securities Exchange Commission (SEC)/Public Companies Accounting Oversight Board (PCAOB).

In terms of disciplinary proceedings in relation to an individual audit engagement, they will almost always bring proceedings against both the RI and the audit firm. Sometimes the allegations admitted and a settlement is reached with the FRC's Executive Counsel. Other times it goes to an independent tribunal.

The record UK fines wrre imposed on KPMG for their audits of Carillion:

- KPMG was fined £21 million and severely reprimanded
- Peter Meehan (partner) was fined £350,000 and excluded from ICAEW membership for 10 years.

They were also disciplined for misleading the AQR investigation into the Carilliin audits (the audit team prepared documents after the fact and presented them to AQR as if they had been prepared during the audit). In this case they also went after the managers and a trainee who had prepared the documents at their instruction:

- KPMG were fined £14.4mvand severely reprimanded.
- Peter Meehan was fined £250,000 and excluded for 10 years
- Mr Wright (senior manager) was fined £45,000 and excluded for 8 years.
- Mr Bennet (manager) was fined £40,000 and excluded for 8 years
- Mr Kitchen (manager) was fined £30,000 and excluded for 7 years
- Mr Paw (3rd year trainee) was severely reprimanded (Executive Counsel wanted him excluded for 4 years and fined £50,000, which would have been twice his salary at the time as compared to about half of the partner's earnings).