Studio Retail collapsed into administration in February 2022, eight months after Forvis Mazar had finished its audit and signed off the business as a going concern. Investors suffered heavy losses, while the business was bought out of administration in a pre-packaged sale by Mike Ashley’s Frasers Group.
Following an investigation, the Financial Reporting Council said it had found "numerous, serious and pervasive failings" in Forvis Mazar’s audit work on Studio Retail’s "highly material" expected credit losses provision, including "failures to obtain sufficient appropriate audit evidence".
It also ruled that the firm’s use of the going concern basis was "flawed" and lacked "professional scepticism".
It has therefore imposed a financial sanction of £577,125 on Forvis Mazars, reduced from £950,000 due to exceptional cooperation, admissions and early disposal. David Allen, the audit engagement partner, has been fined £33,412, also reduced for the same reasons from £55,000.
Justine Davidge, acting deputy executive counsel at the FRC, said: "The decision highlights the rigour and expertise required when auditing expected credit loss provisions. Serious breaches and failings were found in the audit work of this area.
"The case also underlines the continuing importance of auditors carrying out work, particularly in the significant area of going concern, which is responsive to risks which have been - or should have been - identified."
Greg Simpson, UK head of audit at Forvis Mazars, said: "Quality is central to Forvis Mazars and we regret that our work fell short of the required standards in this instance."
He noted that the firm had made "sustained investment in audit quality, resources and processes" since 2021.