KPMG fined £1mn over ‘rudimentary’ failures in TheWorks audit
April 26, 2023
Big Four firm has paid £69mn of penalties over five years, far more than rivals
KPMG has been fined £1mn by the UK accounting regulator over its auditing of stationery seller TheWorks.co.uk, taking the total penalties and costs levied against the Big Four firm to £69mn over the past five years.
The Financial Reporting Council fined the firm on Wednesday for failing to meet audit requirements during its review of TheWorks.co.uk’s accounts for the year to April 2020. The investigation findings focused on KPMG’s audit of the company’s inventory.
“The admitted failings, which critically undermined KPMG’s approach to the audit of inventory at a retail entity, were rudimentary and should not have occurred,” said Claudia Mortimore, FRC deputy executive counsel.
The £1mn fine is the 13th against KPMG since 2018, far outstripping the frequency of penalties faced by its rivals. Deloitte, PwC and Grant Thornton have been fined six times each by the FRC over the same period. EY has been fined once.
The £69mn figure includes fines of £58mn imposed against KPMG and its partners by the FRC and industry tribunals, reduced from £72mn for their co-operation with inquiries.
KPMG has also been ordered to pay £11mn in regulators’ costs, while six former partners and staff have been banned from the accounting profession for a total of 49 years.
Cath Burnet, the firm’s UK head of audit, said: “Audit quality remains our number one priority and we continue to invest significantly in training, controls and technology to drive further improvements.”
The firm’s scores in FRC inspections improved last year after heavy criticism from the regulator over its previous “unacceptable” results but it is still counting the cost of previous failings.
The FRC has opened at least three investigations into audits by KPMG at Carillion, Eddie Stobart Logistics and Carr’s Group.
KPMG, where partners received an average of £717,000 last year, also paid £5mn in November to settle litigation relating to its auditing of insurance and outsourcing group Quindell. It agreed in February to pay an undisclosed sum to settle a £1.3bn claim by liquidators of former audit client Carillion, which went bust in 2018.
In addition to FRC fines, KPMG’s UK arm was hit with a $2.6mn penalty by the US audit regulator in December over “improper answer sharing” by staff on internal tests and its use of unregistered overseas affiliates to carry out audits of companies with a US presence.
The list of scandals has not dented KPMG’s position as one of the dominant Big Four, a group that includes Deloitte, EY and PwC. KPMG audits 25 of the FTSE 100 and 46 of the FTSE 250, according to figures from Adviser Rankings.
The FRC also levied a penalty of £43,875 on Wednesday on former KPMG partner Anthony Sykes, who led the audit of TheWorks.co.uk.
The fines for KPMG and Sykes were reduced from £1.75mn and £75,000 respectively because they co-operated with the investigation. Sykes was also fined last year for his work leading the audit of Rolls-Royce. He declined to comment.
“We accept that elements of our work for the 2020 audit of TheWorks did not meet the professional standards required,” said Burnet.
[The Financial Times]
