The auditor of controversial insurance outsourcer Quindell has been fined more than £3m over its work with the client.

KPMG was reprimanded and fined £4.5m (discounted for settlement at £3.15m), and audit engagement partner William Smith £120,000 (discounted to £84,000) over the audit of Quindell’s 2013 financial statements, by the Financial Reporting Council (FRC).

Their conduct fell “significantly short of the standards reasonably expected”, with their misconduct relating to a failure to obtain reasonable assurance that Quindell’s (now Watchstone) financial statements as a whole were free from material misstatement, failure to obtain sufficient appropriate evidence, and failure to exercise sufficient professional scepticism.

The audit areas affected included revenue recognition for legal services, and a series of transactions relating to the sale and purchase of software licenses, related services and investments.

Quindell is currently being investigated by the Serious Fraud Office into its business and accounting practices. In June 2015 a review by PwC found some of Quindell’s revenue recognition accounting “at the aggressive end of acceptable practice”, and inappropriate accounting policies.

The fines and reprimands come as the audit profession faces serious questions about both how its market works, and the regulatory regime it operates within. New Competition and Markets Authority chair Andrew Tyrie has suggested that a probe into the Big Four firms’ dominance at the top of the market needs investigating.

Sir John Kingman has created a panel to support him during a review of the governance and effectiveness of the FRC, also issuing a call for evidence.