Irish Auditing and Accounting Supervision Authority fines accountants over BDO audit of reinsurer

The State’s accounting watchdog has fined and reprimanded two accountants over their role in carrying out a BDO Ireland audit of the 2018 financial accounts of the Irish unit of New York-listed reinsurance company Greenlight Capital Re.

The Irish Auditing and Accounting Supervision Authority (Iaasa) said on Friday it fined Brian Hughes, a partner and head of financial services with BDO in Dublin, who was the engagement partner on the audit of Greenlight Reinsurance Ireland DAC, and John O’Callaghan, a former BDO Ireland partner, who was the engagement quality control reviewer, each €10,500.

Most of the audit work on the parent company was carried out by the BDO network in the US.

“This investigation uncovered serious deficiencies in how the audit was undertaken,” said Iaasa chief executive Kevin Prendergast. “Among the issues that have formed the subject of this settlement, auditors need to satisfy themselves as to the adequacy of work undertaken by other audit firms, in particular where that work is undertaken in accordance with a different set of accounting standards.”

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Iaasa said it found in its investigation of the work of Mr Hughes that there were a number of areas of non-compliance with international standards on auditing. These included issues around identifying and assessing risks of material financial misstatements, forming an opinion and reporting on financial statements and communicating key audit matters in the independent auditor’s report.

With respect to Mr O’Callaghan, the investigation identified non-compliance with international standards on auditing relating to quality control for an audit of financial statements, it said.

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BDO Ireland said: “It is important to note Iaasa did not question the appropriateness of the audit opinion issued. This review relates to an audit in respect of the year ended 31 December 2018. The firm immediately took the necessary steps to review and adapt our systems and procedures to reflect the findings and recommendations highlighted.”

The firm added that it is “committed to continuously evolving our audit offering by investing in our people, processes and technology” and that quality improvement “is an ongoing process and we continue to engage with our regulator in an open and transparent manner”.

These are the seventh and eighth monetary penalties the Iaasa has imposed on an individual since it assumed direct responsibility in 2016 for inspecting audits of so-called public interest entities, such as banks, insurers and companies whose shares or debt are listed on a stock exchange. Five of the fines have been levied in the past six weeks alone.

The latest case underscores the rigours involved in being a public interest entity auditor, a market dominated by Big Four accounting firms because of the costs and compliance work entailed.