BDO partner got a pay rise despite adverse review

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John Mulligan

AN audit partner at the Irish offices of accounting giant BDO got a pay rise despite a finding that they had completed some unsatisfactory work at the firm.

The findings came to the attention of the Irish Auditing and Accounting Supervisory Authority (IAASA) after it selected a sample of five audit partners and BDO and reviewed the performance evaluation documentation retained by the firm for the period ended February 2020.

The Authority referenced the case in its newly-published annual audit and activity report. The findings of the BDO review were released in March this year.

"BDO acknowledges the report and can confirm the matter was dealt with internally,” the firm said in a statement. “It is important to note the latest external regulatory review during that period found the work of the partner to be satisfactory demonstrating that performance had improved from a quality and risk perspective, and this was reflected in their evaluation.”

During the review, BDO noted that 2019 and 2018 monitoring results relating to audit quality were used for 2020 performance evaluations. BDO also provided the Authority with a schedule of the internal and external monitoring results that were used.

The Authority noted that for one BDO audit partner in the sample it selected, there were monitoring results for three audits that were relevant to that partner’s 2020 performance evaluation.

Those three audit performances by the partner were designated ‘satisfactory’, ‘unsatisfactory’, and ‘improvements required’ by the firm.

“Although the firm’s schedule of monitoring results showed unsatisfactory results and improvements required relating to audit quality for the partner, there was no evidence that these results impacted the partner’s remuneration,” noted IAASA.

It added: “The firm’s evaluation committee made no reference to the partner’s monitoring results and concluded to recommend the partner for advancement within the partnership. This advancement resulted in an increase in the partner’s remuneration.

“Further, the documentation supporting the partner’s performance evaluation evidenced the failure of the firm to adequately evaluate quality issues arising,” the Authority added.

IAASA said that BDO’s performance evaluation documentation referred to only two of the three monitoring results relating to the partner. There was no reference to the “improvements required” indicative grading.

The Authority also noted that the BDO partner’s self-evaluation noted the “unsatisfactory result was based on an area where there was fundamental disagreement with the reviewer”.

“The partner’s evaluation documentation noted their self-quality and risk rating was ‘meets requirements’, despite monitoring results indicating poor audit quality,” added IAASA.

The Authority stated: “The Authority recommends that, going forward, the firm clearly evidences consideration of all relevant quality monitoring results in evaluating the performance of audit partners and demonstrates how unsatisfactory audit quality results impact on partner remuneration.”

The Authority’s work includes the supervision of audits carried out on so-called Public Interest Entities (PIEs) such as stockmarket-listed firms.

Its latest report notes that last year, four audit firms – Deloitte. EY, KPMG and PwC – audited approximately 75pc of PIEs and earned about 87pc of the related fees.

At the end of 2022, the report notes that the Authority had six open investigations in relation to possible contraventions of legislation or breaches of a RAB’s (Recognised Accountancy Bodies) standards by a statutory auditor under section 934 of the Companies Act 2014.