Sanctions have also been imposed against Philip Westerman, a former partner of Grant Thornton. He has been fined £120,000.

In respect of the 2016 audit a financial sanction of £1,700,000, adjusted for mitigating factors and admissions/early disposal to £1,130,500, has been imposed against Grant Thornton. While, £350,000, reduced to £193,375, was imposed against the firm for its 2018 audit.

In respect of the 2016 Audit, the FRC found that there were serious failings by Grant Thornton and Mr Westerman (the respondents) in the conduct of the audit concerning their assessment as to whether SDI’s financial statements contained the necessary disclosures to draw attention to the possibility that its financial position may have been affected by its relationship with Delivery Company A.

Whilst the respondents identified related parties as an area of significant risk, they failed to treat with professional scepticism management’s assertion that Delivery Company A was not a related party of SDI. There were a number of relevant factors which should have prompted Grant Thornton and Mr Westerman to consider and follow up matters further, but they did not.

According to the watchdog, the respondents should have obtained audit evidence commensurate with the level of risk, but the evidence obtained was insufficient for the respondents to reach a reasonable conclusion as to the appropriateness of the related parties disclosure.

Both Grant Thornton and Mr Westerman failed to evaluate whether the overall presentation of the relationship between SDI and Delivery Company A in the financial statements met reporting requirements. In so far as Grant Thornton did consider these issues, they failed to document their consideration, conclusions, and audit evidence.

Even though related parties had been identified as a significant risk, the respondents also failed adequately to communicate this to those charged with governance before the 2016 financial statements were finalised.

In respect of the 2018 audit, there were failures in the respondents’ audit work relating to two specific areas of the audit: (1) inventory provisions; and (2) website sales revenue.

The inventory provision in 2018 was £162.2m and an increase on the previous audit year. It was a highly material amount. Website sales was the second largest area of revenue for SDI in 2018, accounting for 20% of total revenue. The Respondents identified that both were areas of significant risk in the 2018 Audit.

The respondents failed to obtain sufficient appropriate audit evidence, evaluate whether information provided by SDI was sufficiently reliable, or to prepare sufficient audit documentation commensurate with the risk in relation to these two areas of the audit.

Jamie Symington, deputy executive counsel to the FRC, said: “The audit failings in this case were serious and relate to fundamental auditing standards. It is particularly important that auditors follow up with due rigour where they have identified potential related party transactions as a significant audit risk.

“Auditors must adopt a mindset of professional scepticism, and exercise good judgment based on sufficient and properly documented evidence. The package of financial and non-financial sanctions imposed by the FRC on the auditors in this case will help to drive improvements at the firm and the wider industry.”

A spokesperson for Grant Thornton UK, told Scottish Financial News: “We are pleased to now conclude these long-running matters, which date back to 2016. Having invested significantly in the quality of our audits since this time, we have seen a marked improvement in our results and are confident that the issues identified by the FRC’s investigations, whilst limited to discrete areas of the audits, are not reflective of the work we produce today.

“Today’s announcement marks the final outcome of legacy FRC investigations, all of which have been in the public domain for some time.”