The Financial Reporting Council (the FRC) has agreed to settle disciplinary action brought against Mazars and one of its partners, Richard Karmel for a total of £2 million – the largest out of tribunal settlement made by the FRC. The settlement concludes the complaint brought by the FRC in relation to the advice Mazars and Mr Karmel gave to the trustee (the "Trustee") of the First Quench occupational pension fund (the "Fund").
In 2007 First Quench (part of the group responsible for brands such as Threshers, Wine Rack and Victoria Wine) was acquired by Vision Capital and Pension Corporation. As part of the acquisition it was proposed that Pension Corporation would be substituted as the sponsoring employer of the Fund in place of First Quench.
Mazars were engaged to provide the trustee of the Fund with: (i) a comparative analysis of Pension Corporation's and First Quench's covenant; and (ii) advice on the merits of the proposed substitution of Pension Corporation as the sponsoring employer. Mazars produced a report on each.
The FRC's complaint alleged that there were a number of material errors in the reports. However, the overriding thrust of the FRC's complaint was that Mazars and Mr Karmel had allowed the professional judgement they owed to their client, the trustee, to be overridden by the commercial interests of Pension Corporation.
Under the terms of the settlement Mazars and Mr Karmel admitted the misconduct alleged in the FRC's complaint and received severe reprimands in addition to paying fines and legal costs. The FRC accepted, however, that: (i) the misconduct was neither dishonest nor deliberate; (ii) that Mazars and Mr Karmel had co-operated with the investigation throughout; and (iii) Mazars had taken remedial action once the misconduct was identified.
This case is a salient reminder for accountants that clearly identifying the client and potential conflicts of interests is an important, and not always straight forward, exercise. As is so often the case with large multi-party transactions, the roles and imperatives of the parties and their advisors evolve constantly. This makes it critical that accountants (and other professionals) keep their conflict position under constant review.