BDO fined over NMCN audit breaches as UK scrutiny intensifies

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BDO fined over NMCN audit

Highlights

BDO fined £1.3mn and partner Geraint Jones £50,000 after reductions for 'numerous and pervasive breaches' in the 2019 NMCN audit, per FRC findings.
BDO's 2019 audit failed to detect over £21mn in material misstatements at NMCN, with 2020 losses ballooning to £43mn amid subsequent management departures.
Regulatory and legal pressure on BDO intensifies with a pending £80mn lawsuit from NMCN's administrators, continued FRC criticism for substandard audits, and recent £6mn fines in separate misconduct cases.

Regulator findings on the NMCN audit

As reported by the Financial Times, BDO has been fined £2mn for what the watchdog calls "numerous and pervasive breaches" in its audit of NMCN, the construction company that later collapsed. The regulator says the mistakes in the 2019 audit, NMCN's final set of accounts before it filed for administration, are significant and serious.

The FRC also fined audit partner Geraint Jones £75,000, with both penalties reduced for co-operation to £1.3mn for BDO and about £50,000 for Jones. BDO admitted the breaches, while the regulator says the failings are not intentional or dishonest.

The watchdog says BDO identified significant risks that NMCN may have materially misstated revenue and profit on long-term contracts, but failed to obtain reasonable assurance that the financial statements were free from material misstatement. It also says the firm did not apply sufficient professional scepticism and failed to gather enough audit evidence to conclude on NMCN's status as a going concern.

Jamie Symington, the FRC's deputy executive counsel, says BDO failed to critically assess evidence, challenge management assertions and exercise professional scepticism in important areas, including going concern. BDO says the audit fell below the standards it expects, but adds that it has made significant structural changes to its audit practice in the six years since the NMCN audit.

Broader legal and market pressure on BDO

NMCN, formerly North Midland Construction, went into decline in 2021 after a months-long delay in reporting its 2020 results. BDO had issued clean audit opinions on the London-listed company in 2018 and 2019, although those accounts are later found to contain more than £21mn of material misstatements.

The group's 2019 accounts showed double-digit growth in revenue and profit and were signed off only months before the unexpected departure of its chief executive and chief financial officers. Estimated losses for 2020 then ballooned to £43mn, deepening questions over the earlier audit work.

Regulatory pressure on BDO is building more widely. The firm, the UK's fifth-largest accounting group, has recently won major audit mandates away from the Big Four, but it has also been criticised by the regulator for five straight years for audits that fall significantly short of expectations and was ranked the weakest performer among its peer group in the regulator's 2025 inspection.

BDO is also facing an £80mn lawsuit from NMCN's administrators, who claim the auditor drafted two versions of its 2019 audit opinion, one flagging material uncertainty over going concern and another giving the company a clean bill of health. Separately, the watchdog is probing BDO's audit of Home REIT, and in November it fined the firm and two former partners more than £6mn in another case of what it called extremely serious misconduct.

Our earlier coverage of the UK government’s stance on Bharti Enterprises’ BT stake explained that officials are prepared to block any move beyond the 25% threshold on national security grounds, given Openreach’s role in critical broadband infrastructure. We noted that Bharti had edged up to 24.95%, with any increase above 25% expected to trigger a formal review under the National Security and Investment Act and potentially limit the investor’s ability to expand influence despite growing board representation.

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