Accountancy’s regulator has fined KPMG and partner Michael Barradell after they admitted misconduct in relation to the audits of fashion retailer Ted Baker in 2013 and 2014.
The Financial Reporting Council (FRC) settlement saw KPMG severely reprimanded and fined £3m—reduced to £2.1m alongside £112,000 in costs. Barradell was reprimanded and fined £80,000—reduced to £46,800 taking into account mitigating factors and settlement.
Misconduct arose from KPMG providing expert witness services to Ted Baker in a commercial court claim, in breach of ethical standards and which lost its independence in respect of the audits.
The audit team ultimately reviewed the work of the expert witness in terms of Ted Baker’s treatment of the claim in its accounts, “and this posed an unacceptable self-review threat”, stated the Financial Reporting Council.
The expert engagement fees also far exceeded the audit fees in the two years.
Both KPMG and Barradell admitted that their conduct fell “significantly short” of the standards reasonably expected of ICAEW members and firms.
“Ethical Standards are critical in supporting the confidence that third-party users can reasonably have in financial statements in circumstances where, of necessity, they only have incomplete information to judge whether the auditor is in fact objective,” said Claudia Mortimore, interim executive counsel at the FRC.
“Where those standards are breached such that the auditor’s independence is lost, user confidence is likely to be undermined; the FRC makes clear by these sanctions the seriousness with which such breaches and their consequences are viewed.”