Big Four audit firm KPMG has received its largest-ever fine from regulators after they imposed a hefty £14.4m sanction over the firm’s response to regulators examining its audit work at Regenersis and Carillion. The original fine, £20m, was reduced for co-operation.
It was the collapse of Carillion in 2018 and the perceived faults in audits of the firm that helped prompt a wide-ranging government review of corporate governance and major proposals for reforming audit, the audit market and the work of audit committees.
The largest fine to date levied by the Financial Reporting Council was £15m on Deloitte in 2020 for faulty audits of the software vendor Autonomy.
The latest fine for KPMG comes over misleading information provided to investigators while they were undertaking regulatory inspection work on the audits of Carillion and Regenersis.
A tribunal found KPMG was in breach of a “fundamental principle of integrity” related to inspection, or audit quality reviews (AQR).
The FRC’s tribunal comments: “The seriousness of the misconduct that we have found proved scarcely needs explanation. Effective audits are essential to the financial system.
“Management and investors should be able to rely on the audited financial reports of the company in question. The purpose of AQRs is to assess, and where appropriate suggest improvements to, the effectiveness of audits.
“The effectiveness of the regulation of auditors and audits depends on the accurate disclosure to the AQR team of the audit work carried out by the auditor. Misleading the AQR undermines the effectiveness of its work; indeed, it may deprive the AQR of any useful result.”
Four KPMG staffers were also sanctioned, with fines of between £30,000 and £250,000, as well as being excluded from membership of their professional accountancy body, the ICAEW, for periods of between seven and ten years.
Elizabeth Barrett, the FRC’s disciplinary chief, said: “Misconduct that deliberately undermines the FRC’s ability to monitor and inspect the effectiveness of audits is extremely serious because it obstructs the FRC’s ability to protect the public interest. This case underlines the need for all professional accountants, regardless of seniority, to be aware of their individual responsibility to act honestly and with integrity in all areas of their work.”
KPMG’s previous largest fine was for audits of Silentnight, the bed and mattress maker, in August last year when the firm was fined £13m, severely reprimanded and ordered to appoint an independent reviewer to examine its work.
The fines were imposed because one of its partners, David Costley-Wood, was advising Silentnight and another company, HIG, while it was working on an acquisition of Silentnight. Regulators said the firm and Costley-Wood breached principles of “integrity and objectivity”.