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The Financial Reporting Council said the breaches were \u201cserious and numerous\u201d and spread across almost every critical area of the 2019 audit of the construction and infrastructure group.<\/p>\n
Former audit engagement partner Geraint Jones was also fined \u00a349,875 and severely reprimanded over the failures.<\/p>\n
NMCN, formerly North Midland Construction, fell into administration in October 2021 after a series of profit warnings and mounting cashflow pressures.<\/p>\n
The contractor reported revenue of \u00a3405m and pre-tax profit of \u00a37.5m in its 2019 accounts, signed off by BDO in April 2020.<\/p>\n
But the FRC said BDO failed to obtain enough evidence to support key judgements around long-term contract profits, contract assets, receivables and going concern assumptions.<\/p>\n
Investigators found major shortcomings in testing revenue recognition, costs to complete, loss-making jobs, retentions and variable income across hundreds of contracts.<\/p>\n
In one of the most serious findings, the audit team only fully tested four contracts after filtering out large parts of the contractor\u2019s order book from detailed scrutiny. Around \u00a3180m of contract revenue was left outside detailed testing procedures.<\/p>\n
The regulator also criticised BDO\u2019s handling of going concern checks during the early months of Covid.<\/p>\n
It added that the audit team did not adequately test whether NMCN could continue trading for the required 12-month assessment period.<\/p>\n
The watchdog said BDO also failed to properly investigate warning signs around delayed projects and potential liquidated damages claims, despite internal concerns over projects running behind schedule.<\/p>\n
Jamie Symington, deputy executive counsel at the FRC, said: \u201cThe breaches in this case are fundamental to audits of companies delivering major infrastructure contracts, where particular care needs to be taken in the audit of revenue and profits from the performance of long-term contracts.<\/p>\n
\u201cThe statutory auditors failed to critically assess evidence, challenge management\u2019s assertions and exercise professional skepticism in important areas including going concern.\u201d<\/p>\n
The FRC stressed it was not alleging dishonesty or recklessness by BDO or Jones and said there was no finding that NMCN\u2019s accounts were actually misstated.<\/p>\n
BDO received credit for an \u201cexceptional level of cooperation\u201d during the investigation, helping reduce the original \u00a32m fine by a third.<\/p>\n
The watchdog also confirmed BDO has since overhauled its audit methodology for firms operating on long-term construction and infrastructure contracts following wider regulatory criticism of its audit practice.<\/p>\n
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